Consumers are increasingly doing their banking online. No longer do they need to make treks to a bank branch to make deposits.
Many are attracted to these online outfits because of the conveniences they offer. Consumers can handle just about every one of their banking transactions without having to step one foot into a bank branch.
Online banks are thriving because they are tapping into the digital age, starting with simply being online. Technology has afforded them the chance to offers the same services and products to customers that traditional banks provide. However, their offerings come with lower costs because they don't have the overhead costs traditional banks must cover.
You would think that online banks are set to put banks out of business, but that's not the case at all.
As these online banks grow in popularity, it leads one to wonder how traditional banks are still booming.
Staying ahead of the pack
Consumers are enjoying the plethora of non-traditional online banking options that are available, leaving many traditional brick-and-mortar financial institutions having to alter their business models to remain competitive.
The digital age has forced traditional banks to not only have to compete with other traditional banks but also online banks that are started by tech-savvy people. Their advanced understanding of the digital age, coupled with the willingness of venture capitalists to help fund them, make them a force to be reckoned with.
Many traditional banks recognized and saw the threat of online institutions, early on. Take for example the many online options traditional banks offer. One of the lucrative means banks make money relates to monthly fees.
Banks recognized the increasing popularity of direct deposits by employers and jumped to take advantage of this paycheck option. They started to waive monthly fees for customers who received their wages via direct deposits.
Online banks often do not charge customers fees for ATM withdrawals since they don't have branches for consumers to withdraw cash. That's a huge plus for many.
Not to be outdone, traditional banks relaxed their ATM policies. You may recall there were fees if you exceeded the allowance for ATM withdrawals. Fees could be assessed even if you used that bank's ATM. Gradually, banks began doing away with the fees altogether.
Still, there could be fees for using other banks' ATMs. Then came along the handy debit card, which allows for cash withdrawals at merchant point-of-sale machines. These withdrawals are typically free, no matter where they are made.
The art of satisfying the customer
Banks are also remaining competitive in this digital age by boosting the customer experience.
This is why banks are transforming their branches to deliver financial products and services on demand.
This includes focusing on growing areas of their business where customers are most engaged, notes Richard Hunt, the President and CEO of the Consumer Bankers Association. He told Media Planet that adding a digital component to branch banking allows banks to serve and meet the needs of many generations.
He used mobile applications as a tool traditional banks are using to improve the customer experience. He said:
People want convenience and to be able to access, transfer, or manage their funds while on the go. Once we saw how popular and powerful the smartphone was, companies in every industry knew they needed to embrace a digital payments platform to keep up with the competition. Most banks now offer free mobile apps so customers can make transactions through their phone, such as depositing a check or transferring funds from one account to another.
Customers' aversions to branches
People's daily schedules are changing the way they prioritize their activities. Physically going anywhere is not at the top of the list for many. This doesn't just pertain to shopping online, but also banking. Why trek to a branch when your laptop, tablet, and smartphones let you bank when and where you want.
As noted by McKinsey and Company, most customers only visit an actual branch to get cash or, occasionally, advice. It found that globally financial institutions now process far more transactions digitally than in branches.
Also, since the financial crisis of the late 2000s, more than 10,000 U.S. bank branches have closed—an average of three a day, according to McKinsey. It suggests banks that adopt certain new technologies will be able to thrive in the digital age.
One such technology has led to what is called the "smart branch." Smart branches use technology to boost sales and improve customer experience significantly, according to McKinsey.
When done right, applying the concept transforms the way a bank branch operates (reduced staffing), significantly lowers real-estate requirements, and alters customer interaction (targeted, relevant sales and service-to-sales programs)—with a resulting 60 to 70 percent improvement in branch effectiveness, as measured by cost savings and increased sales.
Its research found that although many banks have started to adopt elements of the smart-branch model, most are not extracting the full value potential.
Digital currencies in the digital age
Digital currencies, such a Bitcoin, became all the rage in recent years. People fed up with traditional banking and investing, turned to Bitcoin as the wave of the future. Many hailed it as being a major threat to fiat money, such as the dollar.
Clearly, that hasn't materialized, as the Bitcoin bubble has popped. Banks may have won, for now, the battle over which is better, but still there are areas they must address in this digital age.
USA Today referred to a Fed report in detailing how cash was still king, making banks still valuable. The report found that cash represented 30% of all transactions and 55% of transactions that were less than $10. Furthermore, while online shopping continues to grow, 77% of payments were made at the merchant's location.
Staying relevant in the digital age
Forbes points out some interesting moves banks must make to stay relevant in the digital age: