Overcoming the Distance: Geographic and Virtual Challenges in Retail Banking

Do you know how many of your banking customers live within driving distance of a branch? Does it matter anymore? For today’s consumer, access to online banking is more critical than having a bank branch within driving distance. However, the online banking space is more crowded than ever with personal financial management tools and mobile payment services offered by firms other than financial institutions, and these game changers are making geographic distance irrelevant and creating a virtual distance between consumers and their financial institutions. The 2016 National Technology Readiness Survey, run by Rockbridge Associates since 1999, examines these and many other trends in retail banking.

This year’s study indicates that the need for online banking is driven mostly by younger consumers (18-34 years old) and those who are more technology-ready. While almost everyone in the United States lives within driving distance of a branch of their primary bank, only a third (33%) say that all their financial institutions have a location within driving distance, suggesting a willingness to use banks they can’t actually visit.

How can banks compete in areas where they don’t have physical branches? Banks that can offer online banking, free ATM transactions at local ATMS, better rates than local institutions, and online billpay have a better chance at attracting customers outside their geographic footprint.

Interestingly, mobile capabilities have not yet moved into “critical” territory for all consumers—almost half (47%) of younger consumers (aged 18-34) view mobile banking applications as critical but overall, 44% view them as “not that important” in their decision to use a financial institution and only 21% of consumers cite mobile apps as a reason to switch to a bank without locations nearby (see chart above). Still, about a third (36%) of consumers say they use their bank’s mobile app for at least some of their banking needs.

In addition to rising competition among financial institutions due to decreased geographic barriers, banks also face the rise of online or software-based personal financial management (PFM) tools. A quarter (24%) of younger consumers and almost one in ten (9%) consumers of any age currently use such a tool, with Mint.com and Quicken being the most commonly used PFM tools.

The bigger retail banks have started offering similar tools, but there is an awareness issue here: a full two-thirds of consumers are not sure whether their bank offers a personal financial management tool. For those who are aware that their bank offers a tool, the most cited reason for not using it is not feeling like they need it (55%), followed by not wanting to have all their financial information stored in one place (19%). Banks of all sizes that are considering offering these tools need to demonstrate the benefits and security of them, as well as make them accessible through all channels—online, mobile, and in branch—to reach their customers.

A similar challenge for financial institutions exists from mobile payment services, which enable users to forgo debit and credit cards and pay by scanning their smartphones at the register, thus distancing themselves from their actual bank accounts. Mobile payment services are more common among younger consumers, with almost half (48%) saying they use one compared to just under a quarter of consumers overall (22%). Over half (57%) of consumers who use a mobile payment service use PayPal, compared to 30% who use Apple Pay and 26% who use Starbucks’ mobile app to pay for coffee drinks.  One in ten consumers (10%) uses Capital One Wallet, demonstrating that traditional financial institutions with mobile payment services can compete in the broader market of providers.

From online banking to PFM tools to mobile payment services, technology is rapidly changing the way consumers manage their money and interact with the trusted institutions that hold their money.  Financial institutions need to be able to adapt quickly and accordingly to continue to serve their customers well.

About the Study:  The National Technology Readiness Survey is conducted by Rockbridge Associates, Inc. and has tracked technology and e-commerce trends since 1999.  The most recent wave is based on an online survey wave of 1032 U.S. adults sampled at random from a consumer research panel. The survey was conducted in December 2016, and results are weighted to match census characteristics.

 


Written by: Hilary Ross-Rojas, Research Director