In 2019, over half of all checking accounts were opened via digital channels. In 2020, this number rose to two-thirds.
In 2019, megabanks and digital banks were responsible for 55% all checking applications. In the first three months of 2020, this figure reached 63% — and climbed to 69% in the next three months.
Meanwhile, community banks and credit unions accounted for 15% of applications in 2019, and even fewer than that in the six months of 2020. What’s happening here?
It’s a trend: More accounts are being opened online. But digital account openings are only one piece of a steady shift in the financial services industry, one where consumers do more over online and mobile channels. Megabanks and digital banks are riding this wave, using powerful online offerings to draw consumers away from smaller institutions.
Moneycenter banks have strong digital operations that allow them to expand into communities where they may not have a single branch. Digital offerings have also opened the door for new players like online-only challenger banks, big tech companies and fintechs that are successfully luring in younger customers with payments, investing and even cryptocurrency services. Make no mistake: if community banks aren’t already in direct competition with these digital players now, it’s only a matter of time before they are.
Who Are The New Players?
In the past, community banks’ primary competitors were primarily each another or a nearby regional bank. Today, technology is redefining what it means to be a financial institution, and thereby reshaping the competitive landscape.
Big tech heavyweights like Facebook, Alphabet’s Google, Apple, and Amazon.com have become increasingly involved in financial services in recent years. Their efforts are growing in scope: Google, for example, launching Google Plex, which includes a checking account. Most likely, these firms believe that over time, their expertise in the areas of data and software development will yield a natural advantage over incumbent financial institutions.
Online-only startup banks (also known as challenger banks or neobanks) like Chime and Varo Money are also proving to be a legitimate concern. While Varo’s strategy included obtaining a full-fledged banking charter, which it received in July 2020, Chime relies on partner banks to manage their deposits. And just because they’re startups, doesn’t mean they’re small; Chime boasted 12 million users as of the end of 2020 — 4.3 million of whom identified it as their primary bank.
How Community Banks Compete
As the marketplace evolves, so do consumer expectations. With Amazon and other on-demand services at their fingertips, consumers have become accustomed to digital experiences that are fast, seamless, and personalized.
To compete with megabanks, tech companies and challenger banks for digitally-savvy customers, it’s essential that community banks consider the following strategies:
Invest in speed and reliability
Digital banking solutions need to be fast and reliable to satisfy the high standards that consumers have come to expect. This means efficient processes, minimal to no downtime and speedy customer service. Technology that integrates with your core in real time is key to accelerating customer onboarding and boosting overall user experience.
Play to key strengths
Community banks should lean into the areas where they shine by catering to customers’ personalized needs. Banks should also position their products according to market demand and digital best practices, and configure them for strong customer experience and institutional outcomes.
Seek out the right technology partners
The difference between a good and bad technology partnership is significant; banks often end up disappointed with the performance of a digital solution. To avoid this, it’s important to extensively reference-check technology providers and inquire about the actual delivered (and not theoretical) return on investment of a solution.
Building a Digital Transformation Strategy
As digital banking becomes the norm, it has prompted a massive shift in the competitive landscape. Yet with the daunting task of digital transformation ahead of them, what’s the best place for community banks to start?
One impactful area to focus on is digital account opening. In fact, 42% of banks and 35% of credit unions say they are very interested in fintech partnerships that prioritize digital account opening solutions. Partnering with an account opening provider can help small and mid-size financial institutions position themselves favorably as consumers continue to adopt digital banking.