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The onset of the COVID-19 pandemic triggered a variety of shifts in consumer and business behavior as nations around the world have sought to mitigate risk by shifting from in-person interactions to digital-based interactions. This trend can be clearly seen in the banking sector. As early as April 2020, survey data from J.D.Power and consumer data from FIS found large upticks in customers using mobile and online banking services relative to 2019 . Similarly, a 2021 Morning Consult survey found that the pandemic has increased the use of mobile and online banking even as visits to branches and ATMs have decreased substantially.

 

The pandemic also proved to be an accelerating force for the growth of fintech as the sector benefited on the demand side from an increase in online transactions and on the supply side from an investment-friendly environment. Beyond fintech, the rise in cryptocurrency as well as growing trends in embedded finance and data-driven personalization suggest that the future of banking is increasing digital. In addition to innovation, these trends are being driven on the supply side by new market competitors such as fintechs and major retailers, and on the demand side by the increased purchasing power of Millennial and Gen Z consumers. These next generation consumers are digitally native and represent strong market demand for online and mobile banking, as well as for increasingly personalized banking services and products.

 

Discussion of digitalization in the banking sector often includes specific capabilities such as: creating integration with third-party web applications to link bank accounts with Venmo or other mobile payment services; automating back-end processes that rely on routine tasks such as automated projections for lending activity based on machine learning analysis of multi-year lending data; and leveraging analytics to identify opportunities for cross-selling that can include automated and tailored product placement in a mobile banking app. But as digitalization deepens opportunity for personalization, digitalization will go beyond these features to include significant customization of products and services for users based on unique needs or desires.

 

Given the various trends in banking outlined above, the most pressing question for Minority Depository Institutions (MDIs), Community Development Financial Institutions (CDFIs), and all other community banks is the following: will they be able to integrate technology with their mission and relational knowledge to better serve customers who are underserved by major banks, or will they instead be made obsolete by major banks and fintech firms who can leverage greater economies of scale

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Download Navigating the Digital Frontier in Banking: Challenges and Opportunities for Mission-Driven Financial Institutions. 

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Published April 26, 2023