The COVID-19 pandemic has been hard on the economy, but not every sector’s experience has been the same. In fact, some members of the finance industry have seen an uptick in business
During the pandemic, 57% of consumers said they prefer to bank online. In the survey’s 2019 edition, slightly fewer than half of those polled said the same.
Some increase in digital banking might be expected, given social distancing guidelines. What’s surprising is just how many trends are converging to boost online banks:
More Consumers Are Switching to Online Banking
Right now, every public outing represents a risk. Visiting a brick-and-mortar bank when virtually every financial chore can be done online simply doesn’t make sense.
For most banking needs, all you need is an app-managed debit card. Without setting foot in a bank, you can access ATMs, transfer money to friends, and track your expenses. Aside from safe deposit boxes and notary services, it’s tough to see how physical banks can differentiate themselves at a time like this.
What’s more, consumers who make the switch are unlikely to shift back as soon as the pandemic is over. Switching barriers are high in the financial sector, so traditional banks may lose some of their customers to digital banks for good.
Online Banks Already Follow Social Distancing
Brick and mortar banks are scrambling to retrain employees, order masks and sanitizer, develop new procedures, and educate concerned customers. Those pressures are taking a toll on customer-brand relationships, employees, and revenue.
While in-person banks must adjust to social distancing practices, online banks already exceed those standards. That’s given them an edge with wary consumers. Not visiting a public space whatsoever is safer than wearing a mask, after all.
Online Banks Have a Head Start Against Traditional Banks
Thanks to legacy systems and higher operational costs, many brick-and-mortar banks dragged their feet on digital transformation. Now they’re trying to play catch-up as demand for online banking has skyrocketed.
Digital banks can’t operate without their technological ducks in a row. That’s why their online customer experience tends to beat traditional banks. When bugs do crop up, online banks are typically quick to fix them.
Online Banks Are More Cost-Effective
Right now, businesses across the board are pinching pennies. Because of all the infrastructure they have to manage, traditional banks are having a tougher time tightening their belts than their online peers.
Fewer costs — which translate to better rates for customers — have always been the greatest strength of digital banks. Aside from having fewer operational costs to worry about, digital banks also benefit from lower customer service costs because most customers who bank online opt for self-service.
The result is a flywheel effect: Cost-conscious customers are embracing online banks to save money, which gives those banks a bigger customer base — which ultimately reduces customers’ costs further because those costs are spread across a larger pool.
As challenging as COVID-19 has been, it’s proven fertile ground for online banks. Whatever the post-pandemic future holds for the finance industry, it’s a good bet that digital banking will be the default.