OBSERVATIONS FROM THE FINTECH SNARK TANK
In 2019, half of all community banks and credit unions opened less than 5% of their new checking account applications in digital channels. Granted, there were some who opened far more than 50% of their checking accounts digitally—but they were few and far between.
But community banks and credit unions accounted for just 15% of all checking account applications in 2019.
Megabanks—Bank of America, JPMorgan Chase, and Wells Fargo—and digital banks, however, accounted for roughly 55% of all checking account applications in 2019, 63% in Q1 2020, and 69% in Q2 2020.
With the megabanks’ and digital banks’ focus on digital channels, checking account openings in digital channels exceeded branch openings in 2019, and grew to 66% of the volume so far in 2020.
Digital Account Openings Overtake Branch Applications
Simply looking at the total number of checking account applications by channel overlooks an important difference in consumer behavior, however:
Consumers open more checking accounts through digital channels when applying for a secondary account than when they open their primary account.
Primary Account Applications
Nearly two-thirds (64%) of the checking account applications taken during the height of the Coronavirus crisis in Q2 2020 for what consumers considered their primary account were submitted either online or on a mobile device.
That was up from 59% in the first quarter of the year.
The transition point was sometime in the second half of 2019 when, for the first time, digital applications for primary accounts exceeded branch applications.
There is an emerging dynamic skewing checking account applications away from branches, however: The rise in the secondary checking account.
Secondary Account Applications
Cornerstone’s consumer research, commissioned by Velocity Solutions, found that 35% of Americans have more than one checking account. These secondary accounts are opened in digital channels at a faster pace than those intended to be consumers’ primary accounts.
In Q2 2020, roughly three-quarters of the applications consumers submitted for their secondary checking was done through digital channels, up from 65% in the first quarter of the year.
The crossing mark happened between late 2018 and mid-2019 when 60% of applications for secondary accounts came in on digital channels.
Consumers Rate The Mobile Process Higher
Across 10 aspects of the checking account opening process, a larger percentage of consumers who opened an account in the past three years rated their experience on the mobile channel as “excellent” than consumers who applied online or in a branch.
Bankers like to believe that consumers open checking accounts in branches because they want human assistance and assurance in making the right decision. There may be some truth to that, but according to Cornerstone’s study:
- The rest of the experience isn’t as good as it is in a digital channel, and
- Consumer ratings of the quality of the branch experience haven’t improved over the past few years (and have actually declined in some aspects).
For example: Among consumers who opened an account in a branch more than three years ago, nearly half (46%) rated the number of steps it took as excellent. Of the consumers who opened an account in a branch within the last three years, however, just 37% rated that aspect of the process as excellent.
The Hard News For Community Banks and Credit Unions
The pandemic forced many mid-sized financial institutions to accelerate their digital account opening efforts as branches were temporarily closed.
It also forced them to re-think some long-held assumptions.
As mentioned above, many bankers believe that consumers open checking accounts in branches because they want human assistance in making the right decision. There may be some truth to that, but it’s overstated. Choosing a checking account isn’t rocket science.
Investing in improvements to the branch-based account opening experience, at this point, is crazy.
Competing With the Megabanks
The three megabanks have an outsized share of the Millennial market. It’s not just because of digital account opening, but thanks, in part, to superior mobile banking capabilities.
Community banks and credit unions will find it nearly impossible to beat the megabanks at that game.
Instead of trying to compete head-on with the big banks to be consumers’ primary checking account provider, the community-based institutions should strive to get a foothold in consumers’ financial lives by being their secondary checking account provider.
Consumers choose a secondary account for a wide range of reasons including better interest rates, better rewards, and better personal financial management tools.
It’s still going to require a good digital account opening process, however.
To see more of the research, click here for a copy of the report The Reacquisition Imperative: Why Financial Institutions Must Reacquire Customers Through Engagement. Follow me on Twitter or LinkedIn. Check out my website.
Ron Shevlin is the Managing Director of Fintech Research at Cornerstone Advisors. Author of the book Smarter Bank and the Fintech Snark Tank on Forbes, Ron is ranked among the top fintech influencers globally, and is a frequent keynote speaker at banking and fintech industry events.
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