Digital Transformation, Accelerated

By Karen Epper Hoffman

More than any other event in decades, the ongoing pervasive COVID-19 virus and its subsequent fallout this year has changed every element of people’s lives—from how they work, where they eat and shop, how they spend leisure time, whether or not they travel, if they even see friends or family. Likewise, these events have rapidly altered the way they bank as well.

Perhaps the most prominent and obvious change is the sharp uptick in digital banking and payments usage by retail and business customers alike. The on-again, off-again shelter-in-place mandates and short-term closures of any business that was not deemed “essential” has essentially forced even those who have been slow to embrace digital delivery channels to change their tune. “With most branch lobbies closed, banks are seeing more online activity across the board,” says Chris Nichols, director of capital markets for CenterState Bank.

Cases in point: Online account opening has more than doubled at most banks since last year, while online lending, website traffic, call center use and online and mobile banking have risen dramatically, Nichols adds of the Florida-based bank, which merged earlier this year with South State Bank and is in the process of taking on the latter brand. “While some of this shift is temporary as a result of branch lobby closures, most of this shift should be permanent as banking customers form habits,” he believes, adding that more than one-third of new account openings have been from folks over 60.

“We’re seeing years of adoption happening in a matter of weeks,” adds Jamie Warder, EVP and head of digital banking for KeyBank. And yet, he believes that when branches and stores fully reopen and the situation stabilizes, “there will be a return to less digital usage. When it is not required of them, some customers are going to go back. But for others, their behavior has permanently shifted.”

Indeed, this behavioral dichotomy is underscored by recent research from consulting firm Simon-Kucher and Partners. Forty-two percent of respondents to its survey said they would reduce their bank branch visits even after the lockdown orders are lifted. But more than half (54 percent) of surveyed bank customers said that despite their embrace of more digital services in recent months they would only consider opening a bank account at a branch. Depending on the complexity and value of the account, customers may be even more biased toward in-person account opening: for example, 53 percent said they would go into a branch to open a business account, while a whopping 69 percent said they would do so to get a mortgage.

And for those customers partial to branches, absence has made the heart grow fonder in recent months as survey respondents say they that once reopening they would travel even further to visit a branch: from a 28-minute walk to a 37-minute walk in urban areas; and from a 16-minute drive to 27-minute drive in suburban or rural settings, according to Simon-Kucher. This may stem from the fact that roughly just over one-third of customers are “completely satisfied” with their primary financial institution’s digital services: ranging from 33 percent of customers at community banks to 35 percent with super-regionals and 39 percent of the customers of the top four U.S. banks.

As Joan McGowan, global banking industry principal for SAS, says, this recent “forced embrace of mobile banking has reshaped consumer behaviors in a much more constrained timeline than the industry could ever have imagined possible.” McGowan believes the realization that it is much easier and more convenient to bank via mobile device versus visiting a branch will indeed “continue to drive digital banking adoption, particularly in the contactless payments arena.”

However, in order to deliver on this opportunity, McGowan says banks must analyze data to “match the level of expectations and experience that customers become accustomed to from industries like retail,” she adds. “Facing the real competitive threat of fintechs and paytechs, there is great potential for the banks to either win big or lose big.”

Banking evolution, accelerated and transformed

Striking a balance between the sharp and sudden rise in demand for digital banking and payments, along with a continued desire (perhaps even a resurgence) of need for human interaction, arguably will be no easy task. Ben Soccorsy, SVP and head of digital payments for Wells Fargo, says his bank is also seeing “tremendous activity relative to people adopting digital banking at a much faster clip. People can’t leave the house or visit their local branch. This is a journey we’ve been on for a long time, but we weren’t expecting these overnight changes.” In the six weeks between mid-March and the end of April, Wells Fargo saw a 23 percent jump in the number of customers signing onto digital banking, with a 6 percent increase in mobile banking customers (to 25 million) and 4 percent (to 31 million) for online banking customers. This boom comes despite the fact that digital banking services were already heavily subscribed at big banks like San Francisco-based Wells Fargo, where they have been available for a dozen years or more.

In addition to online and mobile banking services, Soccorsy says he has also seen a rapid uptick in customers’ use of electronic payment options like Zelle, the adoption of mobile wallets and greater use of contactless payment by phone and card, which “addresses people’s new concerns about touching things,” given the spread of COVID-19, he adds. Hygiene worries have brought to the fore research about how much bacteria are carried on paper currency and on point-of-sale terminals or kiosks, which has in turn driven the abrupt embrace of contactless payment as consumers feel the potential risk of handling paper money.

Even digital banks have been seeing a bump from homebound bank customers. Online-only Radius Bank, which had been seeing a 50 percent increase month-over-month in account-opening, has experienced double those rates in consumer accounts and a five-fold increase in business accounts since the start of the COVID-19 crisis, especially given businesses’ interest in receiving PPP government support, says Mike Butler, CEO for Radius Bank. In addition, Butler says the bank is seeing higher debit card spending and sign-ups for its digital financial management tools. “We’re seeing more people use this as their primary account,” he adds.

Just as necessity is the mother of invention, demand in a time of crisis has been the mother of motivation—especially for banks. In light of a huge fast jump in volume, Radius Bank is adding more staff, boosting its marketing and it will be redeploying an improved mobile and online platform for its SMB customers. Also, Butler adds that the bank has stepped up plans to add more personalization to its services, allowing for more variance in mobile deposit limits (depending on the customer), for example. (Earlier this year, Boston-based Radius Bank announced that it would be acquired by fintech giant Lending Club, in a deal that has drawn a lot of attention to the power and potential of digital-only banking plays.)

In addition to seeing a huge jump in online account opening and mobile deposit, KeyBank has seen as “resurgence in the use of the call center, chat video, and chatbots,” according to Warder. Like other big banks, Key has offered digital banking for many years, but recent events have encouraged the bank to push up plans to offer more digital financial advisory services, loan servicing, and financial planning, he adds.

Meanwhile, CenterState is responding to the demand for more digital banking by increasing the types of deposit accounts customers can open online to include accounts with multiple beneficiaries, health savings accounts and “hero accounts” targeting first responders, Nichols says. The bank has also begun offering an online shopping cart where customers can place various financial products into their “cart” (as they would at Amazon or another online shopping site) and checkout with a single, consolidated app. Nichols says this option will “dramatically cut down on the customer’s time while saving cost for the bank.”

The Paycheck Protection Program has also pushed banks to amp up operations to meet customer needs. “Many banks made more loans in six week [as a result of PPP]as it would normally take them a year to originate,” Nichols points out. Hence, banks like CenterState have boosted productivity by automating loan processes with robotic process automation and business process automation. In CenterState’s case, the bank was able to develop an “entire new loan program, technology, new policy and new business process in less than three weeks. . . . This has never been done before in banking and it was only due to the industry’s can-do spirit and with technology, where we able to pull this off,” Nichols adds.

And yet, industry onlookers see that many banks still have a way to go to rise to the continuing challenges that COVID-19 and its subsequent financial and social effects will present. “Most banks did not make the rapid-fire tech deployments required to meet the new digital demand and are yet scrambling to keep up with the pandemic’s digital implications, specifically around lending,” McGowan says. The analyst believes that once these bankers can “take a breath in the wake of COVID, leadership will reflect and reprioritize their data analytics programs to drive contextual understanding of their customers and clients to deliver on the promise of customer experience excellence. The reality is that many banks still operate and manage their digital technology as a separate channel, so achieving that zenith will be a tall order.”

Karen Epper Hoffman is a frequent contributor on technology and security topics to the ABA Banking Journal.