Omnichannel banking: the key to building long-term relationships

By Nathaniel Harley

The events of the past year have accelerated the adoption of digital channels in the banking industry. Today, even bank customers who are fond of branch offices have started to embrace online and mobile options. Many of these customers have found that they actually prefer to use digital channels for many transactions and plan to continue to do so in the future. In fact, 42% of those surveyed by Simon-Kucher said they expected to visit branches less frequently once the COVID-19 pandemic ends.

Consumers are expressing strong interest in continuing to perform routine online tasks, such as disputing fees, paying bills or opening a new savings account. However, for more complex transactions, many people still want to visit branches. For example, Simon-Kucher indicated that 69% of those surveyed would prefer to apply for a mortgage in person rather than online.

This suggests that there is room for digital channels and physical branches to exist in harmony. Some of the fastest growing financial institutions are taking this “omnichannel” approach, investing in digital and physical channels to meet changing user needs. Particularly for community banks looking to connect with more customers in attendance, an effective strategy may be to invest in digital operations now while continuing to optimize established branch networks.

Digital banking enables less dense branch networks

How exactly do digital and physical services work together to attract new customers?

First, branches are the best imprint advertisement for your institution. Your branches and ATMs keep your brand at the top of customer concerns and drive traffic to your website. Meanwhile, customers who sign up for a new account through digital channels are likely to head to local ATMs or branches in the future, creating a virtuous cycle of user satisfaction and brand loyalty.

Digital channels also allow more transactions to be carried out remotely through a customer’s PC or mobile device, expanding your bank’s geographic footprint. Simon-Kucher’s research indicated that each branch of a bank has a specific “gravity field” around it, which indicates the distance customers are willing to travel to get to the branch (measured by the distance walking distance for urban areas and driving distance for suburbs). and rural areas).

Research found that offering top-notch digital banking services resulted in roughly a 37-minute gravity field for city dwellers and a 27-minute gravity field for suburban and rural customers. These numbers represent an increase of 31% and 72%, respectively, compared to institutions offering digital “business as usual” capabilities.

The first conclusion to be drawn is that digital channels allow banks to reach new customers by expanding the reach of each branch. The second, perhaps less obvious, conclusion is that strong digital channels support less dense branch networks. Simon-Kucher estimated that banks using the best digital tools can expect the same branch performance while reducing branch density by 15%.

Digitally Acquired Customers Can Be Very Profitable

More new bank accounts are being opened digitally than ever before, with online and mobile accounts comfortably overtaking branches for primary and secondary checking accounts, across the industry. But banks may be wondering: what is the demographics of all the new customers acquired digitally? And more importantly: what are the profitability implications of this mix?

The reality is that digitally acquired customers are vital to banks, especially when their lifetime value is taken into account.

Consider that the millennial age group (born 1981-1995) is expected to enter “peak profitability” as early as 2022. Over the next 30 years, the profitability of this cohort will only increase. As millennials age, banks will have the opportunity to provide them with access to a variety of products such as loans, wealth management and business banking. Initiating a relationship with these people now can pave the way for such opportunities in the future. (And yes, many of these opportunities will benefit from having a local branch.)

But while online account opening is popular with a younger audience, it also works well for older people and existing customers. The popular industry benchmark for opening new accounts online is three minutes or less, but the best solutions allow existing customers to open new accounts in 30 seconds or less, making it much easier to deepen. existing relationships.

Digital banking boosts brand loyalty and cross-selling potential

When an institution offers high-quality digital services, it also improves the potential for cross-selling. In fact, a McKinsey report found that “very satisfied” customers are 2.5 times more likely to open new accounts or purchase new products with their existing financial institutions, compared to those who are simply “Satisfied”. For community banks that value their current demographic mix, great digital services ensure that all parties involved get the most out of the relationship.

Despite the ubiquity of digital banking, branches still have good prospects for the future, although their purpose and day-to-day operations may change. Ultimately, the most effective strategies won’t pit digital banking against in-person banking.

Instead, digital and physical channels will work together to provide the greatest possible convenience and flexibility, with customers being able to initiate a process through one channel and complete it through another, with little time or effort required. to manage the transfer. . This is the true meaning of omnichannel, and taking this approach will result in happier, more loyal customers, and more willing to deepen their relationship with your institution.

Nathaniel Harley is the CEO and co-founder of MANTL, a technology company.


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