No, I’m not referring to the song by the Digital DJs (nor do I recommend listening to it). I’m referring to much of the confusion and erroneous conclusions around digital banking. In this article, we’ll try to clear some of that up.
First, there appears to be considerable disagreement on just what we mean by “digital.” It’s like the parable of the five blind men and the elephant: everyone seems to ascribe a different definition to the term, without stepping back to look at the big picture.
It may be tempting to define “digital” in terms of some flowery notion of what technology can do in the financial services realm, but it’s probably more useful to simply define it in terms of the platforms that comprise it (at least today):
- Website(s)
- Online Banking
- Mobile Banking
- Bill Pay
- E-Statements/E-Notices
- Mobile Wallet
- Other apps
Having defined digital banking as such, let’s turn our attention to some of the myths around the primary target market(s) for digital banking: who uses it, what they use, how they use it, and how important it is to them.
The prevailing wisdom suggests that millennials are that primary target market. In preparation for a recent client engagement where we would be addressing this topic, I asked several millennials I know a few questions about their banking habits and preferences:
- Is your primary financial institution (PFI) a bank or a credit union?
- What is the primary digital channel you use for banking (OLB or mobile)?
- If your primary channel is OLB, do you use your PFI’s mobile app?
- How frequently do you interface with your primary digital channel?
- Do you use your PFI’s billpay service?
- If not, what is your primary billpay method?
- Are your credit cards issued by your PFI, another issuer (travel cards, etc.) or both?
- How do you pay your credit card issuers (billpay, through the card issuer’s platform, checks)?
- Do you use RDC?
- Do you use deposit-taking ATMs?
- Do you deposit checks at a branch?
- How many times do you visit a branch each year?
- What are your reasons for branch visits?
- How satisfied are you with your PFI’s OLB/mobile platforms (1-5, 5 being best)?
- Would you change your PFI solely to have a better OLB or mobile platform?
- Would you use a virtual institution as your PFI?
The answers I received from this group of millennials surprised me to a degree. So I expanded the survey to the source of all truth and knowledge: Facebook. I wound up with a total of 19 responses (yes, I have more friends than that, they’d just apparently rather complete surveys like “What state should you live in?” than this one).
While my sample size is statistically insignificant and my study design was informal, I believe the results are representative, and reveal some interesting points. I broke the responses down by age decile (20s, 30s, etc.). The age range of respondents was 26-66, with the average age being 44. Below is a summary of the key findings:
- Overall, 15 respondents listed a bank as their PFI vs. four who listed a credit union. However, two of the five respondents in their 20s listed a credit union.
- The primary channel used was fairly evenly split between OLB and mobile. However, mobile use was dominant among younger respondents, with a gradual migration toward OLB (and branches). This is intuitive, as millennials are never without their phones, while this 58-year-old forgets to bring his to the office at least once a month. It will be interesting to see whether millennials maintain mobile as their primary channel as they age, or whether, like many of us, deteriorating eyesight will push them toward a larger screen. (Of course, who knows what technology will be available in a few decades?)
- All but the oldest respondent use their PFI’s mobile app, even if OLB is their primary platform.
- The frequency of interface with the OLB/mobile platform was, on average, weekly. For millennials it was twice a month, with more frequent interface for those in their 30s and older.
- Just over half the respondents use their PFI’s billpay service. However, only one of the five millennials do, and the oldest respondent also doesn’t.
- The majority of the millennials use auto-debit to pay bills, and don’t even use billpay. However, one millennial reported writing checks for bills that aren’t on auto-debit. Auto-debit was also used by respondents in their 30s, 40s and 50s, but sometimes in combination with billpay.
- Eleven respondents use credit cards issued by other issuers, four use cards issued by their PFI, and another four use a combination of the two.
- About half of the respondents use billpay to pay their credit cards, with all but one of the rest paying their cards through the card issuer’s app or website (if the issuer is not their PFI). The one remaining respondent – the oldest – writes checks.
- About half of the respondents use RDC. Interestingly, only three of the millennials do. One millennial cited the hold on RDC deposits as the reason for not using it; interestingly, that respondent accumulates checks until there are enough to warrant a trip to the branch drive-through, effectively self-imposing an even longer hold on the funds. Another millennial cited the availability of a deposit-taking ATM a block from home – interesting, given that RDC puts the deposit-taking capability in the home. Also, one 30-something responded that RDC “freaks me out.”
- Only three respondents use deposit-taking ATMs: one millennial and two in their 30s.
- Just under half the respondents take deposits to the branch, with most of those in their 50s and 60s.
- The average number of branch visits per year was 11, but for millennials the average per year was two.
- Reasons cited for branch visits included safe deposit box, deposit large checks, deposit coin, break large bills, and business account functions (small business owners visited the branch most frequently, from three times a month to weekly). This helps us understand why millennials don’t visit the branch often: they typically don’t have safe deposit boxes, and they likely don’t receive as many large checks.
- The average satisfaction rating for the PFI’s OLB/mobile platform was 4, with slightly better numbers for those aged 30-49. The range was from 3-5.
- Here’s where it gets interesting: only one respondent would change to a different PFI solely for a better OLB/mobile platform. That helps place digital banking in its proper light: it’s important, but not necessarily a deal-breaker, to have all the bells and whistles.
- And another interesting result: only two respondents – one millennial and one 30-something – would use a virtual institution as their PFI. The rest of the millennials stated that, while they rarely visit a branch, they want to know it’s there. And three of the millennials said they chose their PFI on the basis of branch proximity.
What can we conclude from this? Below are my key takeaways:
- Website(s)
- Online Banking
- Mobile Banking
- Bill Pay
These findings suggest that both the brick-and-mortar presence and digital access are important to financial consumers of all ages. Moving forward, it’s likely that each age cohort will more or less stick with their primary access point; i.e., as millennials age, their primary interface will likely remain the mobile platform, though they may use branches more frequently.
An important aspect of the technology deployment strategy, then, will be how we marry the in-person retail experience with digital platforms. Kiosks in branches, digital cafes, use of video chat and e-signature technologies to close mortgage loans – all of these technologies will shape the future. Geo-fencing will likely also be a consideration; credit unions appear to be somewhat behind the curve in deploying that technology.
In summary, attracting millennials will require digital platforms – especially mobile – but the branch footprint is also important. Attracting and retaining older members will also require digital offerings. And while the functionality of those platforms is important, they don’t appear to be deal-breakers, so it’s not necessary to be on the bleeding edge of technology in order to offer the most flashy mobile or OLB platform. If you offer free checking with interest, that’s likely of sufficient value to your members to overcome a less-than-perfect mobile app.