COVID-19 pushes digital banking adoption to the tipping point

Author Malcolm Gladwell describes a “tipping point” as the moment when an idea, trend or behavior crosses a threshold of mass acceptance and spreads like wildfire. Over the last several months, the COVID-19 pandemic has served as the tipping point for digital banking adoption and usage.

The impact of the pandemic has accelerated the adoption of a broader range of digital banking offerings and shifted consumers of all ages away from the branch at an unprecedented pace. What could have taken years happened in months due to the pandemic. In BAI Banking Outlook research on digital banking trends during COVID-19, conducted in August 2020, BAI found that half of consumers are using digital products more since the pandemic, and 87 percent of them are planning to continue this increased usage after the pandemic.

This indicates that digital banking is moving out of the “early majority” curve and into the “late majority” phase of technology adoption. At this point in a technology’s evolution, most consumers have accepted the technology and will use it on a regular basis. This means digital banking has evolved from a “nice-to-have” to a “must-have” for consumers and businesses.

Financial services leaders are looking at how the pandemic is changing consumer behavior and attitudes to build their strategy for 2021 and beyond. Our research shows that, as more consumers adopt a wider variety of digital banking services, their satisfaction continues to increase. Now is the time to build on the momentum the pandemic has ignited and extinguish the remaining obstacles to adoption and increased usage.

Evaluating the impact of COVID on consumer behavior

BAI Banking Outlook research found that, while digital banking adoption is on the rise since the pandemic began, there is still an adoption gap between the different types of financial services organizations. Direct banks and national banks have seen the largest increase in digital banking growth. Conversely, only 28 percent of community bank customers and credit union members reported an increase in digital product use.

Possible reasons for the difference in use may be that digital is the only channel for direct banks and large banks have invested more into digital banking tools. These financial services organizations also tend to have a younger customer base, which typically contains a higher percentage of early adopters of new technology.

The pandemic is also pushing people to try digital technology that has been less frequently used previously, such as video chat, text chat and voice AI. While the percentage of consumers adopting these digital customer service tools is still small, it’s a notable increase that warrants exploration.

Trust in digital banking is also on the rise. For consumers who reported increasing their use of digital banking offerings, 45 percent are now doing all of their banking digitally.

BAI Banking Outlook research indicates that this trend will continue. Some consumers reported that they will still want to use branches for more complicated transactions after the pandemic. However, those percentages decreased from 45 percent to 32 percent between January and August.

Reliance on the branch for loans or opening accounts has declined as remote channel preferences continue to increase. The preference for speaking with someone on the phone, rather than visiting the branch, when opening an account has roughly doubled to 11 percent since January.

Familiarity breeds satisfaction

According to BAI’s research, the more consumers use digital banking products, the more satisfied they are. More than 90 percent of consumers indicated that their financial services organization’s digital tools met their needs, up from 84 percent in January.

Financial services leaders often assume that one barrier to adoption has been the learning curve, especially for older users. However, consumers across all generations who have increased usage felt the digital tools were intuitive enough to use without support. For those who needed help, about a quarter used videos or other learning tools.

A high satisfaction level with digital banking products should not be mistaken for long-term loyalty. Our research shows that customers remain willing to switch their primary financial services provider for better digital capabilities. Millennials, now entering their peak earning years, are the most likely group to switch.

For all of the positive trends in digital banking adoption, four likely barriers will need to be overcome. By addressing these potential obstacles, financial services leaders can position their organization to leverage digital banking adoption to increase customer acquisition, strengthen customer engagement and boost revenue.

In the BAI Banking Outlook research, 38 percent of consumers identified fraud and cybercrime as their leading worry regarding digital banking, with older generations a little bit more apprehensive than younger consumers. Financial services leaders who can successfully address security concerns across all generations will benefit substantially from increased customer satisfaction and loyalty.

Community banks and credit unions need to close the gap between their organizations and the large, national banks. Leaders should engage their customers to understand the most in-demand digital resources and build strategies to offer those capabilities first. Our research shows the most used digital banking functions are:

  • checking balances
  • transferring money
  • paying bills
  • managing finances
  • depositing checks

Financial services leaders must also build a strategy for bringing along late adopters. For these customers, who remain skeptical or fearful of digital banking services, the learning curve will be steeper. Only 56 percent of late adopters believe their bank or credit union understands their digital banking needs, compared to more than 75 percent of same pace adopters and early adopters. Leaders need to understand and create the resources late adopters need to leverage digital tools more easily.

The final obstacle is building a customer experience that works seamlessly across all channels. When rolling out digital banking products, the customer journey and customer experience are critical to successful adoption. Among the most common frustrations with digital banking is the inability to initiate a transaction in one channel and finish in another without starting over. This is especially relevant for transactions such as loan applications, which often require multiple phases to finalize a submission.

When asked about their priorities for creating a better digital experience, consumers reported that the top three requests are:

  • 24/7 customer service
  • opening and closing accounts without having to enter so much information
  • clear, easy to use apps

While COVID-19 has put stress on the nation’s economy, consumers have quickly adapted by adopting digital banking tools to manage their finances without exposing themselves to in-person interactions. The tipping point has arrived. Financial services leaders need to take the essential steps to support this increased demand while also addressing the barriers blocking other consumers from joining the digital banking evolution.

By looking at these issues and opportunities strategically, financial services leaders will be well-positioned to offer the best possible customer experience, which will lead to more growth in the future.

Karl Dahlgren is a managing director at BAI.

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