If Branches Are No Longer Required, What Do Customers Need from Their Financial Institutions?

Early in 2020, we became familiar with the term “COVID-19” and it shifted the way we lived. Countries around the world quarantined their citizens, closed their borders, and briefly paused their economies.  There is much uncertainty on what the new “normal” will be like and the retail banking environment is not immune to these changes. Given this context, it is imperative for retail banks to continue to overcome geographic barriers, not only to close the physical gap with their customers, but to give them peace of mind knowing they are fully capable of banking without visiting a physical branch. The 2020 National Technology Readiness Survey, run by Rockbridge Associates since 1999, examines many trends in the banking industry, including those in retail banking.

Nearly all of U.S. consumers (84%) live within driving distance of a location from their primary bank, though only slightly over a third (35%) say all the financial institutions they bank with have a branch within driving distance to their residence. This suggests there is a willingness to bank with financial institutions whose branches are not easily accessible.

When we ask consumers what it would it take to convince them to bank without access to a branch within driving distance, a quarter (27%) say nothing could convince them, but for the rest, digital capabilities and free ATM access top the list.  The most important service that would enable a relationship unshackled from physical branches is robust online banking. Free ATM transactions, attractive rates, and online bill paying follow as top factors to bank remotely.

If we look more broadly at what features consumers consider critical in a banking relationship, the top features are online banking (58%) and the ability quickly lock and unlock a debit card if lost or stolen (53%), a feature typically available through contact centers or digital channels. This exceeds the share who consider nearby branches to be critical (51%). Branches are nice to have, with most of those not deeming them critical feeling they are at least desirable (40%), but they are still less important than digital functionality and control.

As relationships become digital, human support may still be required to provide education and advice, although younger generations are more accustomed to relying on digital methods.  Only a handful of consumers consider it critical to have a virtual assistant that provides tips on how to use the bank/credit union’s services and to educate them on how to improve their finances, but over a quarter of Gen Z consumers (29%) consider it a critical feature. Similarly, mobile banking applications are considered much more important by younger consumers. Over half of Gen Z and Millennial consumers (59% and 53% respectively) feel this service is critical, compared to a minority of Gen X and Boomer consumers (39% and 25% respectively). The overall use of a financial institution’s mobile app to conduct financial transactions has significantly increased in recent years (2020: 23% vs. 2016: 11%), so ensuring that most transactions, from the simplest to the complex, can be conducted digitally can give financial institutions a competitive edge in a post COVID-19 world, especially in attracting and retaining younger customers.

Besides going to a branch, another change in consumer financial behavior is relying less on the bank staples of checks, debit and credit cards, and more on non-bank mobile payment services.  We estimate that nearly 88 million U.S. adults use mobile payment services, a significant change from the 55 million users in 2016. Mobile payment services are particularly popular among Gen Z (73%) and Millennial (66%) consumers when compared to Gen X (39%) and Boomers (19%). Of those who use a mobile payment service, over half (53%) use mobile payment services when making purchases at a store. PayPal is the most popular service that dominates the market, followed by Apple Pay, and Amazon Pay.

Mobile payment services’ “contactless” feature is attractive in a post COVID-19 environment, where social distance guidelines and constant disinfection of personal items are encouraged.

From the introduction of online banking to mobile payment services, technology in the banking industry has rapidly evolved in recent years and will continue to do so. If branches are less important in the future, banks can reach broader markets and reduce overhead, but also become vulnerable to fin-tech services that make traditional institutions less relevant. Though COVID-19 changed the way we conduct several activities, retail banking has the right tools to cater to their customers, adapt to current times, and thrive in the new “normal.”

About the Study: The National Technology Readiness Survey is conducted by Rockbridge Associates, Inc. and A. Parasuraman, and has tracked technology and e-commerce trends since 1999. The survey is co-sponsored by the Center for Excellence in Service at the Robert H. Smith School of Business. The most recent wave was conducted in March 2020 and is based on an online survey of 1216 U.S. adults sampled at random from a consumer research panel. Results are weighted to match census characteristics.


Written by: Alonso Espino, Senior Research Manager