Digital banking is speeding up, and banks not getting ahead of the trend will be left behind.
Now is the time for all good bankers to embrace digital banking—or risk being left behind as the pandemic accelerates a trend that was gaining momentum well before the arrival of COVID-19. Engaging with digital now is also smart because the barrier to entry is relatively small and the returns can be significant. Those were among the insights from a presentation at a recent virtual meeting of NeuGroup’s Bank Treasurers’ Peer Group.
- “This was a shift that was going to take years, but now that timeline has sped up,” a digital banking analyst at the meeting said. “It is now compressed into a matter of months.” He also said that “social distancing will reformat bank branches,” so there will be fewer visits to brick and mortar banks, which means banks, like many companies during the pandemic, should consider shrinking their footprints.
- “There won’t be people walking through the door,” the bank analyst said. And contactless payments will continue to grow. “Cash is one of the dirtiest things you can touch these days,” he added.
Growing pool. Another presenter, a bank treasurer, pointed out that the pool of potential clients for digital is growing, particularly in the health care space. Doctors and dentists are increasingly processing payments digitally and want to borrow online to expand their businesses. Another reason to act now: nonbank competitors.
- “Amazon is becoming more bank-like,” the presenter said. The online retailer is “able to use vendor information to offer loans and financing. How can we tap that?”
Bottom line. Bankers at the meeting also heard that current technology solutions help level the playing field for regional banks. “We’re not a G-SIB,” the bank treasurer said, referring to the behemoth global systemically important banks. “So, this was an opportunity to buy and get in,” he said of his own bank’s entry. There are good verticals, he added, and the volume of business could mean a big increase in bank revenue.
- He also said that nearly 90% of all banking is now done digitally, so there’s almost no choice. “Investing in digital infrastructure is paying benefits,” so “if you’re not focusing on digital, you’re missing out.”
- Shift in customer service. The digital bank analyst said that in addition to investing in tech, banks will need to hire more customer service staff. Digital banks are seeing a “huge influx of calls into call centers during the crisis,” he said.
- Saying no. Customers are resisting paying for certain bank services. “They don’t want to pay fees; checking fees and for other services,” the analyst said. Also, digital banks have been waiving fees for early withdrawal on CDs.” The good news is that lower overhead with digital means banks would be able to waive some fees.
- Reality check. It’s easier said than done for regional banks to digitize their entire product set. Online deposit gathering is very rate driven, and not a reliable source of funds. Loan origination online takes work, particularly if you want to digitize the whole customer journey through the interfaces with back-end systems.
- Keep trying. Nonetheless, some members report success, competing with the likes of Chase, which has much bigger systems overhead than almost anyone else. This also eats up a significant portion of their tech spend advantage. Being smaller and agile helps. Members also report success with targeted acquisitions.
- No more wet signature? The digital wave also may be the end of e-signatures, the bank treasurer said. “Will the Federal Reserve keep accepting e-signatures? Banks have temporarily allowed it; will they go back? I don’t think so.”