Three New Reasons Direct Banks Are Dominating
Direct banks have existed for decades but are quickly growing in popularity. From the higher-than-average deposit interest rates, fee-free accounts and convenience of a digital, self-service experience, there are plenty of reasons why consumers are attracted to this type of banking experience. Just look at what happened when Citizens Bank launched its own direct bank, Citizens Access: It attracted more than $1 billion in deposits just three months after launch!
While consumers are happy to reap the benefits of direct banking, what many don’t realize is they’re entering into a new silent partnership that’s changing the financial services industry as we know it. Here’s a closer look at the unique, symbiotic relationship direct banks have brought to financial services and why it’s helping them take the banking world by storm:
Digital Drives A Turnkey Experience
By their very nature direct banks offer the convenience of digital self-service banking, but the idea of online banking has been quite common since the mid-2000’s. Further, mobile and digital channels have been the banking channel of choice for the majority of financial transactions. For the past three years FIS’ Performance Against Customer Expectations (PACE) study has shown that more than 70 percent of bank interactions take place digitally.
So why, did 67 percent of respondents of this year’s research say they’re “extremely satisfied” with their direct bank?
Because the most successful direct banks recognize that digital isn’t simply a low-cost channel; it’s the entry point that facilitates a financial experience. It enables banking that’s built around what the customer wants, how and when. As those needs change, so does the experience.
Today’s leading direct banks use financial technology to deliver a seamless, end-to-end experience the customer feels in every interaction—from initial account opening and onboarding through continued relevant and intelligent customer cross-sell and engagement. In fact, 97% of PACE respondents said that a smooth, easy customer experience is important when they choose a bank.
Data Fosters a Deep Relationship
All financial institutions are inherently privy to robust data, but far fewer can easily harness the findings into a personalized strategy that continually improves and refines the customer experience. Direct bank data may come in through multiple channels including chat, email, desktop and mobile, but it’s all in a format that’s easily made actionable with the right artificial intelligence and automation tools.
Every time the customer transacts, engages with a feature, product or service in the app or website, or contacts customer service at his direct bank, a new piece that completes his unique data puzzle emerges. This use of data is mutually valuable. It results in a personal and contextually relevant banking relationship that lays the groundwork for ownership of the entire household wallet. Every time the customer engages with the bank, he tells the bank how to meet him where he is, and how to better serve his needs. A direct bank that is invested in the long game takes that information and acts on it.
From that perspective, it’s no surprise that PACE respondents who were direct banking customers had the lowest rate of intention to leave their bank, compared to customers of top 50 global banks, regional banks, community banks and credit unions.
Of course, the onus is on the direct bank to translate data findings into new innovations and features the customer deems valuable, but this relationship will become increasingly important as data privacy laws come into effect.
Low-Cost Infrastructure Means Mutual Control
Direct banks can be an attractive model for financial providers for all the costs they don’t require, like a physical location, fleet of ATMs, printed check services and in-person assistance. Though a 2018 study by J.D. Power indicated that just 43 percent of direct bank customers considered it to be their primary banking relationship, that won’t remain the case for long. An increasing number of direct banks are already investing in the financial technology that expands their capabilities.
Many direct banks realize that once a consumer engages with an initial product, getting them to another product is easy because the consumer enjoys the frictionless experience. This allows the direct bank to start small and grow the relationship based on customer needs and product offerings that are timely and relevant. They’ve already got the customer relationship and the insight; it’s easy to go from one, to two, to more products without feeling of a heavy sales push.
Those who continually enhance their offering to establish a full-suite of frictionless, digital-native financial services like the ability to open a home mortgage without the cumbersome loan application and approval process or to provide on-demand access to an AI-powered, empathetic virtual wealth advisor from the comfort of home will move from secondary financial account to the only financial relationship the customer needs.
When that time comes, it will be the win-win that both banks and customers can feel good about.