The new normal in banking is omnichannel

The recent BAI Banking Outlook survey suggests that only a small percentage of financial institutions believe they offer excellent customer experience in their digital channels.

With the rise of the latest COVID-19 variant, the pandemic continues to reshape the landscape of the financial services industry. So where do we go from here?

Our BAI Banking Outlook for 2022 offers valuable insights into what may lie ahead. The new world of banking will be distinguished by new forms of competition, continuing digital-service challenges and the quest to serve customers as their primary financial services organization. Primacy will be paramount.

Our annual outlook is based on a recent survey of 1,000 consumers and a separate survey of 150 banking and credit union leaders.

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One thing is for certain: Changes wrought by the pandemic will not be transitory. At the height of the pandemic in 2020, consumers had little choice but to bank digitally as branches suspended or reduced operations. The rapid advances in digital capabilities produced a positive effect on consumer attitudes. Banks stepped up in many ways, shifting consumer sentiment across the board.

BAI research found that, by 2024, consumers expect 61% of their banking business to be digital, with 39% to involve human assistance. They expect the biggest increases to come from mobile and ATM channels as branch and drive-up services decline as a percentage of the channel mix.

But the branch will remain an important avenue. Baby boomers, who command the majority of bank deposits, will continue to conduct much of their banking at branches. At the other end of the demographic spectrum, Gen Z customers (the top users of all channels) also regularly visit branches as they establish their financial footing.

Digital has democratized banking, making it much easier to work with multiple institutions for best-of-breed products and services. But primacy still drives greater deposit share of wallet and retention. Financial services organizations need to improve the customer experience. Instead of just transacting business, they need to develop relationships with customers—whether they’re boomers or Gen Zers.

Primacy, often determined by where customers maintain their checking account, is worth its weight in gold. It can often lead to the purchase of higher-margin products and services such as mortgages, auto loans or credit cards. Financial services organizations should focus their efforts on primacy, not on attracting more deposits. Institutions are awash in deposits in the wake of curtailed spending and increased savings during the COVID-19 crisis.

Also ahead in 2022 is growing competition from fintechs. Some traditional banks are fighting back by adopting fintech-like products and features, including payday advances and grace periods and forgiveness for non-sufficient funds, to appeal to younger customers and low- to moderate-income households.

Banks are now more willing to collaborate with fintechs to provide more innovative services to their customer base. And fintechs are more willing to collaborate with banks because banks have an established customer base.

In addition, traditional banks face increased competition from each other. Newly combined banks—such as PNC/BBVA and U.S. Bank/Union Bank—are beginning to assert themselves in their new market footprints. BAI expects merger and acquisition activity to continue, because banks need scale to spread technology and branch expenses across a larger customer base for greater efficiency.

If there’s one task that should be atop financial services organizations’ 2022 to-do list, it is to continue improving the omnichannel customer experience to capitalize on the goodwill and momentum generated at the height of the pandemic.

For financial services leaders who responded to BAI’s survey, the largest gap in customer service was in digital interactions, followed by customer onboarding. Despite the progress made on digital channels during the pandemic, only 9% of bankers said their digital customer experience was excellent.

For the second year in a row, industry leaders responding to our survey said the customer digital experience is not only their top business challenge but also their top investment priority. But the leading response to a separate survey question on how to improve the customer experience was “making better use of data for product and service recommendations.” That finding suggests that the industry may be focused on bringing in revenue from customers at the expense of providing the best-in-class omnichannel experience that customers say is their top priority.

A leading-edge user interface can’t solve the customer experience problem on its own. Banks first need to break down data silos and improve technology integration and platforms to deliver a consumer experience that truly attracts, engages and retains consumers.

Financial services organizations have plenty of work ahead to provide a stellar omnichannel experience in the new normal of 2022.

Karl Dahlgren is managing director of research at BAI.

As you’re fine tuning your financial institution’s strategy for the new year, gain insights on emerging industry trends in our latest Executive Report, “A look ahead to banking in 2022.”