Banks Must Think Differently About Customer Experience In A Branchless Digital Environment

Banks have offered online accounts for years, but new digital banking technologies, such as mobile remote deposit capture, and a new generation of young customers are driving increased interest in digital bank accounts.

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Customers in their 20s and 30s have been quick to embrace mobile and online capabilities that are steadily making branches obsolete -- at least for day-to-day banking needs. The fast-paced adoption of mobile remote deposit capture to deposit checks is a recent example of this trend. "The advent of mobile remote deposit capture is eliminating the No. 1 reason for branch visits," says Teresa Epperson, a managing director at AlixPartners, a consulting firm.

Once consumers adopt mobile banking, they tend to increase their use of other digital channels, particularly the online channel, and visit branches less frequently, Epperson says, adding that this trend is most pronounced with younger customers. Consumers over the age of 35 responding to a 2012 AlixPartners' survey say that branch location is the No. 1 factor they consider when changing banks. Younger customers say a desire for mobile banking capabilities is their main motive for switching, and they increasingly are drawn to digital banking accounts, she reports.

In light of this trend, it's clear that banks that want to attract the next generation of customers must offer an exceptional digital experience to draw and keep their loyalty. As these younger customers mature, the industry will see a big shift in channel usage patterns for everyday banking, Epperson predicts. "Some banks want to create a digital bank under their brand. Others -- especially the large nationals -- are repositioning themselves as tech-savvy, digitally oriented organizations to get younger customers."

Who's Going Digital

Established banks such as Barclays and BBVA Compass are expanding the accounts they offer that can only be accessed online or through other digital channels such as mobile and ATMs with no branch support. Nonbank startups such as Moven and Simple also have entered digital banking with online and mobile account offerings.

Barclays' U.S. credit card operation, Barclaycard US, began offering an online-only savings account last year to help fund its credit card book, says Andrew Harris, director of deposits and customer experience at Wilmington, Del.-based Barclaycard US. These accounts are Barclays' first in the United States; it previously only offered credit card products in the U.S. And the bank has looked at expanding its online savings offerings with an online checking account, as competitors Discover and ING Direct USA (now known as Capital One 360 following its acquisition by Capital One Bank) have done.

Digital accounts are a great opportunity for Barclays, which uses the FIS Profile core banking system, and other financial services firms that don't have branch networks to gain account deposit market share from established banks, Harris says. "We see the amount of money moving from traditional banks to online-only accounts increasing each year," he says. Deposits in online-only accounts rose to $364 billion last year, up 32% from 2010 numbers, according to a recent report by consultancy Novantas.

However, the rise of digital banking doesn't mean "either/or" when it comes to channel activity. Digital banking actually is giving customers the opportunity to truly diversify where they're getting their banking services from, according to Harris. Customers used to treat their banks as a one-stop shop for their financial needs. Now they may have a checking account with a traditional bank and an online savings account with a credit card company or a tech startup, and they may use Mint (a personal financial planning website) as their financial adviser, Harris explains. Consumers no longer need a live person as their financial adviser, he says. "Digital is removing people, not just products," Harris observes. "That gets missed. We focus too much on digital products and not enough on service."

Banks used to rely on their branches to provide all of these services and to solve customers' problems. That's always been the value proposition of having a branch network, Harris notes, but in a digital world banks must think differently about customer experience. "When you have the branch to fall back on, you don't see the customer's journey through problems. Without it you have to think harder about the sad parts of the customer journey. You have to be more clear about not creating friction. It makes us think differently."

For instance, customers opening online-only accounts don't get to sit down with branch reps to guide them through the process. Instead, Barclays has a video on its website that takes new customers step-by-step through the account-opening process.

The Branchless Customer Experience

A better customer experience is exactly what online financial services startups are striving to offer in their quests to lure customers away from brick-and-mortar banks. New York City-based Moven launched in February and offers a debit account that users interact with primarily through their mobile devices. Moven doesn't have a banking charter but rather partners with FDIC-insured banks such as The Bancorp Bank (Wilmington, Del.; $3 billion in assets) and provides the front-end account management tool to customers.

The company is targeting Generation Y customers, according to Moven CEO and founder Brett King. Account holders can use their iPhones to tap and pay at the point of sale at any store location that accepts MasterCard, send peer-to-peer payments to friends via Facebook, deposit checks with their phones and track their spending with a financial adviser tool. All these services are designed with a mobile experience in mind, King says. "Great service is no longer measured by a helpful staff. It comes from analyzing what the customer wants and making it simple -- removing barriers," he says. Moven, for example, collects its users' purchasing data and delivers real-time financial advice through a "spending assistant" feature in the Moven app.

With a better-designed customer experience, Moven can reduce the service issues that lead customers to visit branches or contact a call center to begin with, King says. For example, many banks still receive account balance inquiries through their call centers, but Moven designed its smartphone app so that customers' account balances pop up as soon as they log in. And when customers make purchases with their phones, they can get receipts in real time and their purchases are classified according to spending categories that they've set up in their budgets in their Moven accounts. "We take a different design approach," King says. "We're focused on being customer-friendly instead of forcing [interactions] into the branch."

Convenience will be the major factor in deciding where customers deposit their money, King predicts. "When the Web and ATMs came out, everyone was worried about security. But then in the end ease of use always trumps security," he says.

The market for accounts such as Moven's will grow to about 45% of the U.S. population with a mix of providers that includes banks and tech startups, King predicts. Eventually, most banks will offer mostly digital services, and more nonbanks will enter the market, he forecasts. "Once you remove the need for physical branch networks, you greatly lower the cost of entry for nonbanks," he notes.

Don't Count Branches Out Yet

Despite the momentum that nontraditional digital competitors such as Moven have gained, not everyone is convinced that bank branches will disappear. Many customers will still feel some comfort knowing there's a branch location nearby, says Erich Litch, division president for digital channels at financial services technology provider Fiserv. Customers will always prefer to have certain interactions occur face to face with a representative in a branch, he says. "If you experience fraud, and you're dealing with your institution, it's best to sit down at a branch. There are just those situations where you know if you have experienced them, you want to talk with someone face to face," Litch says.

[Requiem For The Bank Branch?]

Digital banking accounts serve the relatively simple needs of younger customers, Litch acknowledges. But as those customers mature and require more complex financial tools to manage their daily lives, they'll find traditional banks -- and their branch networks -- more useful, he contends. Financial institutions specializing in digital accounts eventually will have to offer a wider breadth of capabilities (like the real-time financial advice that Moven offers) through digital channels, he predicts. Once customers start looking for products and services beyond a savings or checking account, the idea of a one-stop-shop bank for all their financial needs might be more appealing, according to Litch.

Moven recognizes that its current services don't compare to the complex portfolio of services mature banks provide, King says, but contends its forward-thinking approach to customer experience will change the way customers view complex financial products. "We're already seeing a pushback against complex products," King declares. "The more complexity [the bank] pins to a mortgage, the less you're buying a home and the more you're negotiating with the bank. Digital platforms like Moven will put pressure on this."

Ultimately, banks that can offer more complex digital products and services and integrate them with basic offerings will have the edge in the digital banking world. Traditional banks are already losing younger customers on the wealth management side, says Chris Psaltos, VP of product management at Scivantage, a provider of online wealth management and brokerage products.

Psaltos' firm aims to help banks integrate their online banking and wealth management offerings to create a seamless online banking experience. He says that banks have been failing to offer such experiences, leading customers between the ages of 25 and 30 to flock to online brokerages that offer better online wealth management tools. But, he believes, banks can win back those customers if they offer better digital products seamlessly integrated with their online savings and banking accounts.

To create that seamless experience, Psaltos advises banks to improve their money-transfer capabilities among accounts and provide a single view of all the customer's accounts once the customer logs in. "Think of it like you're inviting the user into your home and showing them all the rooms," he explains.

In effect, move your one-stop shop -- or as much of it as possible -- from the branch to the digital space. If banks can do that and improve the online customer experience, they can offer a better and wider range of products and services, and they'll be ready to compete in a digital banking world.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio