COVID-19 boosts digitalisation of retail banking

Even before the current crisis, online services had become an integral part of retail banking. The impact of COVID-19 has now reinforced this trend which is likely to continue once the crisis has passed. Cost is a major factor for banks, but customers also increasingly want online banking. This is one of the findings of a recent Deloitte survey of 1,500 working-age individuals living in Switzerland. The survey shows that almost 20% of all retail banking customers have used at least one online service for the first time during the crisis, and just 6% have made no use of them at all. Moreover most first-time users say that they want to continue to use at least some online services once the crisis has passed, although the ’conversion rate’ will differ between services. Retail banks now have an opportunity to win over customers to the benefits of online banking, but they will need a convincing multi-faceted approach that includes hybrid solutions – particularly for complex bank services, such as mortgages and investments – if they are to persuade customers across the board.

Making a virtue out of necessity

Although many bank customers have been using online banking for some time, not everyone is using it yet, or not for all services. Deloitte’s 2019 study “Digital Transformation in Retail Banking” found that Swiss customers were concerned about security, but more fundamentally they were unconvinced about the need for online banking. The COVID-19 crisis has changed their minds. With in-branch banking transactions difficult, if not impossible, the option to bank online has become more important. As the Deloitte survey shows, for every customer continuing to avoid online banking during the crisis, about three were trying it for the first time. And, making a virtue out of necessity, many found it satisfactory; and the use of online banking services grew steadily during the crisis.

Online retail banking takes a leap forward

Chart 1 shows which services bank customers were using online and in-branch before and during the crisis.

Greater use was made of all online services during the crisis. Unsurprisingly, before the crisis many bank customers were already making regular use of simpler core services, such as payment transactions. Over the past few weeks, however, use of these services has increased: 9% of respondents have made online payments for the first time during the crisis, and only 9% have stuck with non-digital methods of payment, including phone payments. The Deloitte survey also shows a fall in cash payments, although the total amount of cash in circulation actually increased in March 2020. One possible explanation for this is that against a backdrop of rising uncertainty, consumers are keeping larger cash reserves than usual – not uncommon during a crisis. Emergency cash reserves of this kind are normally held in high-denomination notes, allowing the larger cash reserves to overcompensate more frequent cash transactions, which normally use low-denomination notes.

The biggest increase has been in online applications for consumer loans, with 16% applying online for the first time. Consumer loans are less complex than mortgages, and the size of the average loan is lower: both factors make these loans suitable for digital processing. Many first-time users have also been making mortgage applications, which can be processed at least partly online, and obtaining advice on banking products. Both are complex services and, together with consumer loans, have so far been among the least-used online services. The smallest percentage increase during the crisis has been in online securities transactions.

Conversion rates: Will first-time users go back to in-branch services?

It appears that once customers have started to use online banking services, they are likely to continue to do so. Most respondents who have used one or more services online for the first time during the crisis intend to continue, at least some of the time. Just over half these first-time users (51%) intend to use a mix of online and in-branch services once the crisis is over, and 14% say they will switch to online banking. However this means that only a minority of first-time users have been won over to using online services exclusively. Many still value personal contact, and this gives retail banks an opportunity to stand out from the new online-only challenger banks, particularly among customers who remain unconvinced by online banking. 35% of respondents say that they will return to non-digital banking when this is possible, although the figures for different kinds of banking service vary widely, as Chart 2 shows.

The conversion rate from in-branch to online services is particularly high when it comes to obtaining information about banking products – unsurprising, given that one of the internet’s main strengths is enabling users to obtain information more directly. Online applications for consumer loans also seem to be winning customers over, with just one respondent in five (21%) saying that they will revert to in-branch solutions once the crisis is over. Not only have relatively large numbers of people experimented with online solutions for consumer loans (Chart 1), many also look set to continue to do so.

Mortgages, securities investments and payment transactions (such as bank transfers) are the three areas in which bank customers are least likely to switch to online services. Mortgages and investments are complex and often require a lot of advice. Mortgages are infrequent one-off and significant decisions for individuals, requiring careful consideration, so – as the findings show – many customers attach importance to personal advice in this area.

The findings in relation to payment transactions are more surprising, as payments are frequent and simple transactions. However, some specific forms of payment are more complex, such as foreign exchange transactions involving less common currencies, and business transactions. Whatever the reason, a minority of customers who have experimented with online payments were dissatisfied with their experience. This means that bank branches are also likely to remain relevant to some extent for payments, with a focus on specific customer segments, such as older people, and more complex transactions. Nevertheless, two-thirds of first-time users of digital payment solutions indicate that they plan to continue to use them, at least some of the time. The already high level of online payment processing is, therefore, likely to increase further.

User profiles: Who has been won over, and who is not switching?

While a majority of respondents to the survey (84%) were using online bank services before the crisis, half had not experimented with more than two of the services listed in the survey. One in five (19%) had experimented with an online service for the first time during the crisis. Just under a quarter of this group (4.5% of all survey respondents) had never used online banking before the crisis. And just one in four of all first-time users of a particular service had previously used three or more other services online. These ‘never-users’ and infrequent users have therefore been more likely than regular users to experiment with digital solutions.

Those experimenting with at least one online service tend to be male (61%) and are younger, better educated and more likely to live in an urban area. Those saying that, having experimented with online solutions, they will continue to use them are even more likely to be male (68%), are younger than average and more likely to live in an urban area, but also have a somewhat lower level of education. Men and women are equally likely to be unconvinced by their experience of online banking and revert to in-branch services; these individuals are likely to live in an urban area, be middle-aged (between 30 and 50) and have a considerably better than average level of education. An above-average level of education correlates with higher income; so individuals in this middle age-group are more likely to need complex banking transactions (e.g. mortgages). It may well be, therefore, that they would prefer to use in-branch services, which involve more personal advice and are tailored to individual needs. Although this group represents only a minority of bank users surveyed, they are a high income earners and therefore an interesting target group for banks.

Opportunities and challenges for retail banks

Winston Churchill is alleged to have said “Never let a good crisis go to waste” – a somewhat unfeeling but also sound piece of advice. The COVID-19 crisis has given the retail banks an opportunity to develop their online services, reducing costs and improving the customer experience. With the online-only challenger banks and other banks increasingly innovative and competitive, retail banks have a real chance to win over customers and improve their digital reach beyond their existing customer base. Banks that had already invested time and resources in online services before the COVID-19 crisis have been able to acquire valuable experience of optimising online interactions with customers over recent weeks. They now need to turn that experience into product development.

With the overwhelming majority of survey respondents planning to continue to use at least some of the online services that they have used for the first time, initial signs are that the retail banks are succeeding: a majority of their customers are satisfied with the online services on offer and want to continue to use them.

Banks still need to do more, however, specifically with regard to more complex services. This is the area in which customers are least likely to switch permanently to online solutions. Hybrid services – for example, digital information and administration combined with in-branch advice – would be a good solution here.

The current crisis presents an opportunity to make cost savings in volume business and to provide advice-intensive hybrid solutions for high-income segments of the customer base. The online and in-branch elements of this kind of hybrid solution need to be integrated seamlessly to enable the retail banks to stand out from the online-only challenger banks and to create genuine added value for high-income customers requiring more complex or more individualised banking services.

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