Banking Faces an Evolutionary Change

 

According to a survey by the Urban Financial Services Coalition, 7.7% of U.S. households do not have a bank account. Globally, more than a third of the population lacks access to traditional financial services.

“Access to financial services can serve as a bridge out of poverty,” stated Jim Yong Kim, President of the World Bank. “This will require many partners – credit card companies, banks, microcredit institutions, the United Nations, foundations and community leaders. But we can do it, and the payoff will be millions of people lifted out of poverty.”

The answer to the problem may also be one of the leading challenges to brick and mortar branches.

The growth of the Smartphone industry has not only changed the way people communicate, but these powerful pocket computers are replacing the way people exchange money or shop.

Mobile payments, as they are called, is a form of payment using Smartphones instead of cash, check, or credit card. In addition to depositing checks through a banking app, a customer can transfer money or pay for goods and services using apps such as PayPal, iPay, and Android Pay, and a dozen more applications, some that even allow peer to peer money transfers.

The technology that is driving this banking alternative is Near Field Communication (NFC), and experts predict that point of sale transactions using NFC will grow to $545 Billon by 2018. No doubt you have seen the NFC symbol on credit card readers at the checkout stand.

According to The Wall Street Journal, “the ubiquity of cellphones could allow a rapid expansion of financial services throughout the developing world with major implications for growth and credit accessibility, a McKinsey & Co. report concludes.” McKinsey Global Institute’s report found that about 1.6 billion people could gain access to financial services by 2025 without major new expenditures on physical infrastructure.

The early adopters of this technology have been the millennials. According to a survey by J.D. Power, more customers than ever are using mobile banking (49% of Millennials, 31% of Gen X and 16% of Boomers).

However, despite this widespread adoption of the digital technology, 71% of all bank customers visited the branch an average of 14 times over the past year. Among Millennials, 71% used the branch, averaging 11 visits in the past year.

But still, bank branches do matter. Across all customers in the study, overall satisfaction among those who visited a bank branch within the past 12 months is 27 index points higher (on a 1,000-point scale) than among those who did not visit a branch (824 vs. 797, respectively). Among Millennials, overall satisfaction among those who used the branch and mobile is 20 index points higher than among those who used the branch only and 37 points higher than among those who used mobile only. Additionally, 78% of new accounts are opened in the branch.

Do mobile payments pose a disruptive threat? Customer satisfaction, overall brand image, and retention metrics are higher among customers who have a mobile payment service linked to their bank account. The trend is most pronounced among the emerging affluent segment of Millennial customers with incomes above $80,000, among whom 64% currently have mobile payment services linked to their accounts.

J.D. Power concluded by saying, “It’s becoming increasingly clear that banks that can get the balance right between digital and personal interactions will be those that build the strongest customer relationships,” Miller said. “The Millennial generation is a great source of insight into the trend, but it’s one that’s larger than any single generation: all customers want choice. They want to choose when, where and how they conduct their banking, and banks must continue to meet that need by offering consistent, tailored experiences regardless of the channel.”

The full study of the J.D Power Banking Study can be found here.

The results of the Retail Banking Satisfaction Rankings for the Southwest are: