The Continued Rise – And Impact – Of Fintech and Online-Only Banks


85% of Americans now say they prefer banking online via a web browser or a mobile app. Only 14% of those surveyed say they would rather do business at a physical banking location and many of those do it strictly for ATM access.

Depositing checks, paying bills, and verifying account balances are easier to do online than in person. Having to actually write a check and send it in the mail seems like a hassle.

Changing Consumer Behavior

At the same time as all this was going on, three other trends have had a huge impact on consumer behavior.

The rise in contactless payments

The use of cash has declined considerably. Today, only one out of six in-person payments involve cash. The pandemic accelerated the use of credit cards, debit cards, and all sorts of contactless payments. Consumers also accepted alternative payment options, such as PayPal, Venmo, Apple Pay, Samsung Pay, and others.

Just a few years ago, we would have marveled at people paying for a purchase with their phone. Now, it’s common.

Increase in online purchasing and home delivery

People are buying online more than ever before. Retail stores have been forced to add curbside pickup and home delivery to remain competitive. 63% of people in a PwC study said they are buying groceries on their phone and 8% said they will likely continue to shop online even after COVID is completely gone.

Use of new brands and technology

Consumers have embraced new brands and technology in significant ways. Contactless payments, online purchasing, and home delivery exposed new companies, ways of paying, and added services like Shipt, Instacart, UberEats, and GrubHub to our vocabulary.

Disruptions to supply chains caused consumers to try new products when their favorites weren’t available.

Shattering Brand Loyalties

Every one of these changes in consumer behavior has eroded traditional ties with brands and exposed consumers to new brands and ways of handling financial transactions. A McKinsey study reports that 75% of consumers have changed their shopping habits, “shattering brand loyalties.”

This has opened the door for Fintech and online banking to grow their market share even faster. The Fintech market is now valued at $47.3 billion globally and investment continues to pour in. Consumers are shifting toward Fintech and online-only banks at an astonishing pace, according to a Statista research study:

  • 65% of Americans use digital banking at banks or credit unions
  • 75% of global consumers have used Fintech services for money transfers or payments
  • 38% of personal loans are now being handled by Fintech companies

Growth in Consumer Adoption of Fintech and Digital-Only Banking

As consumers become more comfortable with financial transactions with new players, the growth of online-only banks (neobanks) has continued. From 2020 to 2022, neobanks added more than 10 million customers — a growth rate of nearly 73%. By 2024, analysts expect there will be more than 47.5 million digital-only bank account holders in the US.

Fintech Has Forced Changes in Traditional Banking

Consumers cite multiple reasons for shifting to Fintech resources, including frustration with traditional banks and credit union technology and high costs for doing business.

Online-only banks don’t have to buy and maintain physical locations or pay on-site employees. They can centralize all of their operations. They don’t have to change habits or try to evolve legacy technology that may not support online transactions as easily.

Fintechs may have higher customer acquisition costs, but with greater efficiencies and lower overhead, they can offer higher rates of return and reduced fees. Consumers looking to open a savings account will find the highest rates at digital banks. Consumers will find lower interest rates for loans at online lenders.

Traditional banks and credit unions now find themselves at a competitive disadvantage when it comes to rates. This has forced legacy players to respond, but the movement continues to be slow.

Many financial institutions have added reward programs to try to compete with limited success. Others have emphasized personal customer service and other financial products to deepen customer relationships. However, as one-on-one contact has been limited over the past two years, the relationship with many financial institutions has become lessened rather than strengthened.

Most traditional banks and credit unions have yet to match online rates. Many are still struggling to offer the same digital services as their Fintech competitors.

Traditional banks and credit unions have relied on reputation and security as their hallmarks. That market position has eroded as consumers have become more comfortable with online transactions that offer and improve the digital experience.

Traditional Banks Respond

Traditional banks and credit unions have seen the change in consumer behavior happen rapidly. Banks and credit unions that have been able to respond to this demand have helped slow the movement toward digital-only banks, but only by embracing what Fintech has to offer.

Wells Fargo reported a 35% increase in remote check deposits and a 50% increase in online transfers during the pandemic. US Bank reported that digital channels accounted for more than 60% of its total loan sales during peak times in 2021. Bank of America said 7 million of its customers used their online automated ChatBot (Erica) for the first time in 2021.

Just a few short years ago, none of these services existed for customers.

Deloitte Insights says the future for traditional institutions will require a blend of high-tech and high-touch banking experience. Traditional financial institutions must offer services consistent with what Fintech players can provide to compete for that part of the market while also focusing on the personal service they can provide for in-person and high-touch product sales, such as providing financial advice, guidance, and expertise. While consumers prefer online banking for transactional purposes (paying bills, transferring funds, depositing checks, and updating account information), they still prefer in-person or traditional banks or credit unions for financial advice or opening up wealth management accounts.

The Path Forward

Agility and innovation still remain difficult for many traditional institutions that must evolve legacy technology. That’s why as many as 70% of banking executives say their future is likely to include collaboration with Fintechs to create new services to remain competitive.

Any collaboration can only bolster the reputation of Fintech companies and move them even more into the mainstream. It also opens up new revenue opportunities for online-only financial institutions as they provide branded or white-label services for traditional banks and credit unions by providing the technology platform and support for Bank as a Platform (BaaP).

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