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PwC’s 2021 Digital Banking Consumer Survey

Now that banking customers are digital, where's your national deposit strategy?

Over the past year and a half, many bank customers got a lot more comfortable with digital interactions, and they 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 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 they do their banking and where they do their banking. These shifts hold important implications for financial institutions of all sizes.

Specifically, we believe that few banks can continue to excel on the basis of their pre-COVID geographic footprint alone — and, in fact, that virtually every bank now should 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.

US consumers are changing how and where they bank

More consumers banked digitally: 61% interact weekly on digital channels

The pandemic has altered the way in which US consumers tend to interact with their financial institutions, with an overall shift toward digital. While this is the continuation of a trend we’ve been following for years, this shift was dramatic.

There’s now a large and growing customer segment that has no interest in branches at all. These digital natives — consumers who are digitally engaged, with a preference for avoiding branches altogether — now represent 32% of those we surveyed, up sharply from 26% in early 2020. Meanwhile, there was a sizable and offsetting decline in digital adopters: consumers who are primarily digitally-engaged but like having the option of using a local branch. This year, many of these consumers dropped the need for the branch security blanket or, to a lesser extent, reverted to using a nearby branch for most of their banking activities.

We’ve identified two types of consumers who like going to branches: those who are “phygital” — active users of both digital and branches — and those who are branch-dependent. As a result of this growing digital comfort and availability, 25% of US consumers now identify as phygital, up from 17% a year ago. This shift neatly mirrors the reduction in branch-dependent users: 35% of the total, compared to 42% pre-pandemic as more consumers grew comfortable using web and mobile apps.

The digital gap in account opening: 20-25% forced to use branch but prefer digital

While banks invested heavily in digital over the last year, we still see a gap in meeting customer preference for digital account opening: 20-25% of consumers would prefer to open a new account digitally but are unable to do so today. For example, 21% of those opening a new deposit account (savings, CD) would prefer to do this digitally, but they’re unable to do so at their current bank.

Branches still have their place for many users: 33% prefer the branch for certain activities. Although they were forced to use digital channels during COVID, two in three customers still find branches to be a meaningful channel to interact with their financial institutions, especially for activities like account management or financial research. And while digital channel use accelerated, there’s still a meaningful customer segment (35%) reporting that they would not use a bank that doesn’t have a nearby branch.

US consumers are also changing where they bank

The pandemic has accelerated the most recent trend of primary bank relationships shifting away from regional and consumer banks to direct banks. This suggests even more challenges for traditional financial institutions because consumers are increasingly open to rethinking everything about how they manage their financial lives.

Digital/direct banks now make up 20% of all primary bank relationships in the US, up from 10% in 2019. Large traditional banks have continued to hold steady at around 42% of consumer relationships. Those in the middle — regional banks, community banks and credit unions — continue to be squeezed. Customers who are staying with their community banks value low fees and customer service, while customers choose digital banks for a diverse product set and as a result of friend/family referrals.

We’re also seeing a generational shift in the definition of a primary bank, with checking accounts less dominant and advice and social support growing in importance.

  • While 60% of baby boomers (consumers over 55) assume that their primary bank is where they hold their primary checking account, only 34% of Gen Z consumers (ages 18-24) say this.
  • Other definitions are emerging: 26% of Gen Zers say this about the bank they consider their trusted advisor versus only 7% for baby boomers.
  • There’s even a small but growing share of consumers who say their primary bank is the one that acts in the best interest for the environment and society: 14% of Gen Z and 12% of millennials (ages 25-39), though this is not a meaningful definition for baby boomers (2%).

Share of account holders who cite a non-bank as their primary financial institution has doubled in the past year

Nontraditional providers of banking services like retailers, social media providers and automakers have been rapidly gaining traction, especially among younger consumers. This may be happening faster than many bankers think: 57% of millennials and 64% of Gen Z consumers now say they have a financial account with a nontraditional institution. In fact, 17% of those with accounts with nontraditional financial institutions now identify this as their primary financial institution, double what we saw just a year ago.

To be sure, “financial institution” still means something. But the nontraditional players — which also have been described with terms like neobanks, personal finance companies, fintechs, direct banks and peer-to-peer lenders — seem to have opened the door to others. One in four consumers say they’d use a retail company for banking activities, and their attitudes about buying banking activities from a social media provider or an automaker aren’t far behind.

consume digital banking chart

Direct banks are no longer a niche play; to a growing number of consumers, they are more relevant than regional or community banks.­

Peter Pollini Banking and Capital Markets Consulting Leader, PwC US

Every bank should be building a specialized national offering

For decades, most banks used geographic proximity as their primary calling card and it worked — until it didn’t. Consumers have been finding their way toward alternatives with little or no physical presence, and the growth in non-financial accounts seems to have come at the expense of both regional banks and community banks. We also note that 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. Over time, then, we expect banks’ geographic story to be even less relevant.

Some financial firms will dig even deeper into their local roots and find ways to make their branch presence meaningful to a profitable segment of customers, but they’re fighting 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:

  • Tied to affinity groups, a particular industry or a particular behavior.
  • Specific and specialized, and specifically broader than just financial products and services.
  • Offered nationally through marketing that targets well-defined groups of consumers.
  • Often delivered through strategic partnerships.

We’re already seeing interesting examples of this at work.

  • Zions Bank offers a holistic professional practice financing solution for medical professionals aspiring to start their own practice, expand a medical office or buy new equipment, or refinance existing loans. Using an online application, the bank is pursuing dentistry, veterinary, optometry and medical practices.
  • Valley Bank has announced a specific solution for cannabis-related business with a cashless digital payment platform to address the needs of this largely unbanked sector. Valley Bank expects to serve dispensaries, cultivators, testing labs, wholesalers, CBD/hemp businesses and armored car services.
  • Chime, a fintech provider that aims to address “everyday Americans who aren’t being served well by traditional banks,” offers a secured credit card for those looking to build a credit history. While the product category isn’t new, the marketing emphasis on eliminating fees and interest is.
  • Nerve is a neobank targeting independent musicians, linked to a music streaming platform. The company is positioning its offering as building strong communities by providing a private networking feature to help professional musicians find each other, make payments and collaborate.
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Making it happen: the capabilities you’ll want to support a national offering

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.

  • 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 with the capability to capitalize on customer needs to introduce relevant products and features.

  • 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.

  • 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. 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, including machine learning models to enhance precision.

  • 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.

Why now: existing banking relationships have become more vulnerable

As our survey shows, customers are rapidly getting more comfortable with digital banking tools, and they aren’t looking back. Banks have counted on the relative stickiness of their relationships, supported by geographic presence. But if buyers don’t care about that attribute — and increasingly they don’t — then a competitor’s targeted digital offering may make it far easier for it to pick off your most valuable customers.

In this sense, competition is not you versus 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. By now, it should be clear that the “anyone” 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 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?

Contact us

Peter Pollini

Banking and Capital Markets Consulting Leader, PwC US

Dean Nicolacakis

Partner, PwC US

Greta Lovenheim Capps

Director, PwC US

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