Now that banking customers are digital, where's your national deposit strategy?
Direct banks’ share of primary banking relationships is up 80% since 2019
of consumers would prefer to open a new account digitally but are unable to do so today
of consumers born since 1996 (Gen Z) say their primary bank is where they hold their main check
Over the past year and a half, many bank customers got a lot more comfortable with digital interactions, and spent less time in branches. What if they never come back?
We’ve been looking into the minds of US financial services consumers since 2012, surveying groups about their banking, borrowing, payment, insurance and investing habits and preferences. We conduct this research to help us understand what retail buyers want, need and do when choosing and interacting with financial institutions. This year, PwC’s 2021 Digital Banking Consumer Survey canvassed 6,000 retail consumers. We found important changes in both how and where these customers do their banking. These shifts hold important implications for financial institutions of all sizes.
Crucially, we believe that few banks can continue to excel on the basis of their pre-COVID geographic footprint alone, and that virtually every bank should now be thinking about implementing a truly national deposits strategy. Fortunately, the market shake-up is also introducing a lot of new opportunities for banks far beyond the large market leaders. If you understand the needs of your target customers and build your value proposition accordingly, they can come.
Direct banks are no longer a niche play; to a growing number of consumers, they are more relevant than regional or community banks.
For decades, most banks used geographic proximity as their primary calling card and it worked fine—until it didn’t. Consumers have been finding their way toward alternative banks with little or no physical presence, and the growth in non-financial accounts seems to have come at the expense of both regional and community banks. This shift is even more pronounced by age: Younger consumers are even less impressed by physical branch presence, and they are even more open to alternative providers. We therefore expect banks’ geography to become increasingly less relevant over time.
Some financial firms will use this shift to dig even deeper into their local roots and find ways to make their branch presence meaningful to a profitable segment of customers, but it will be an uphill battle. We believe that, for most banks, the alternative—pursuing a well-defined customer niche with a relevant offering, without regard to geography—is not only a useful defensive strategy but an opportunity to grow.
Leading banks have been seizing the opportunity to package trusted advice and convenience through solutions rather than products. These solutions are:
We’re already seeing interesting examples of this at work:
In theory, migrating from a geographic-centric marketing approach to a segment-centric marketing approach shouldn’t be all that different. In practice, we recommend that financial institutions beef up their operations to strengthen some key capabilities, including:
An in-house, dedicated product development team. It isn’t enough to say that your service offering is meaningful for elementary school teachers or locksmiths. You need to demonstrate to your target audience that you understand their needs and that your solution offers benefits that other banks don’t. You’ll want to have a team that is responsible for designing and iterating on offers, and that has the capability to capitalize on customer needs to introduce relevant products and features.
An active team focused on partnerships and experiences. Banks have typically been fairly self-contained in their marketing. But as customers gain experience with interconnected ecosystems in other industries, they’ve shown that they’re open to new buying influences. For banks, this offers new ways to reach beyond conventional products and strengthen relationships with customers—but it may also raise new issues around business models, cybersecurity and more. You’ll want to build up a competence around navigating these issues as you define the boundaries of your target market.
A robust customer data platform. Customer segmentation has gotten a lot more sophisticated in recent years. All customers now expect differentiated experiences, drawing on what they’ve seen from other micro-targeting campaigns. There are tools to make this emerging trend simpler for you, such as PwC’s no-code Customer Link product. Customer Link is a customer data solution that unifies your own data with PwC’s extensive third-party data to help you adapt to changing demands. The goal of these tools is to build an integrated view of your customers, often drawing on AI and using machine learning models to enhance precision.
A modern bank architecture. Legacy bank systems were designed for a very different environment, one where products and channels and volumes were comparatively static. To compete effectively in the national market, you’ll almost certainly need a platform that is API-enabled, allowing you to rapidly adapt to any new opportunities, whether internal and external. Cloud-based systems now make it far easier to develop and test products, scaling up and down resources quickly as demand rises or falls.
As our survey shows, customers are rapidly getting more comfortable with digital banking tools, and they aren’t looking back. Historically, banks have counted on the relative stickiness of their relationships and their geographic presence to keep them in business. But if buyers don’t care about those attributes—which is increasingly the case—then a competitor’s targeted digital offering may make it far easier for it to pick off your most valuable customers.
However, the competition is not between you and digital start-ups. You’re now competing with anyone who understands your customers’ needs with more granularity than you do and designs their offerings accordingly. This could be a bank in Maine, Florida, Arizona or Alaska, even if your primary territory is in the center of the country.
There’s still time to adapt, if you’re prepared to rethink geographic limitations and are ready to build on the capabilities and specializations you already have. In fact, we believe that this year’s Digital Banking Consumer Survey points to new organic growth opportunities. In the wake of the pandemic, customers have been settling into new buying patterns with long-term implications. How will you respond?
Banking and Capital Markets Consulting Leader, PwC US
Partner, PwC US
Greta Lovenheim Capps
Director, PwC US