The Tech Bet

For the future of banking, it's all about the apps

Shift to mobile banking

Banking is becoming increasingly less personal, and customers seem to like it that way.

At a time when bank branches are disappearing by the hundreds, many folks don't seem to care. In fact, an expansive survey shows that when it comes to the banking experience, institutions are far better off concentrating on creating great mobile experiences than on upgrading their physical locations.

The preferences show up in a variety of ways: Customers are one-third more likely to enjoy a mobile transaction than a bank visit; those who use branches are three times more likely to switch banks than those who are infrequent visitors; a branch visit is 2.3 times more likely to end up with an annoyed customer than using an app.

Those results came from a Bain financial services practice survey of 114,696 consumers in banks across the world.

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"Mobile is definitely taking off in terms of usage, but it's also a consistently better experience," Gerard du Toit, a Bain partner who leads the firm's retail banking sector, said in an interview. "The younger generation is a little earlier in adopting, but the older generation is right behind them in terms of driving adoptions as well."

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Indeed, Mike Shaheen, a 59-year-old network and IT outsourcing executive from Dallas, describes himself as a "late adopter" who now relies heavily on his Chase banking app.

Shaheen has four children including one attending college and one about to finish school. He uses the app both to send them money and handle their credit cards. He pays loans and keeps tabs on his own accounts.

What he doesn't do a whole lot anymore is actually go to a bank, something he used to do several times a week.

"In terms of my banking day-to-day activities, I never go into the branches anymore," Shaheen said. "Brick and mortar is pretty much a thing of the past."

Branches are fading from the landscape, with 739 closing in the first six months of 2015 and 1,531 shuttering in the 12-month period ended with the second quarter, according to SNL Financial. JPMorgan Chase shut 138 alone and Bank of America closed 130 in the 12-month period.

While some bemoan the declining human touch, branch banking is turning into a numbers game. At a time when banks are coping with higher costs and pressure to condense services, closing branches makes sense as a way to keep customers while lowering overhead.

Cutting off the branches

Bank Branches Closings (Q3 '14-Q2 '15)
JPMorgan Chase5,550138
Bank of America4,842130
Capital One84747
Wells Fargo6,23832
Old National17220
US Bancorp3,22219

The Bain survey found, for instance, that even though Chase is leading the way in branch closings, it "has steadily progressed in loyalty rankings relative to regional banks, in part by developing a distinctive mobile experience."

Mobile, these days, is everything. More than half the respondents — and nearly 80 percent in China and South Korea — say they would miss their smartphones more than their wallets should they lose either. From an industry perspective, the survey found that those who use apps frequently are 40 percent less likely to switch banks. (The survey had a margin of error of plus or minus 2.4 to 7.5 percent in the Americas and Europe and 9.1 percent in Asia.)

For Meg McClafferty, going to the bank isn't even an issue. The 31-year-old finance professional from Boston is a customer of Capital One 360, an online bank where the mobile/digital experience is, well, everything.

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"I haven't had a traditional bank in almost four years, and I don't see myself having one for a long time, (if ever again)," she said in an email interview. "Everything I need in terms of banking is right at my fingertips."

Capital One 360 does have physical "cafes" where customers can get individualized service, but even then it's a nontraditional banking experience.

"The app has all my accounts with Capital One in one place, that I can swipe seamless between," McClaferty said. "Transfers and payments are a breeze. They are always updating the app to be quicker and easier to use."

The U.S. though, could be seen as a bit behind the curve internationally.

The Netherlands leads the way in mobile banking usage, followed by South Korea. China, meanwhile, has been at the forefront of innovation, with the Tencent Holdings' WeChat messaging app connecting some 600 million users.

WeChat users "can pay merchants and utilities, send money to friends, deposit investments into money market accounts, book travel tickets, borrow money and carry out other daily financial transactions with just a touch or two. WeChat shows how payments, commerce and social media can converge," Bain said in the study.

In Slovakia, Tatra banka has an app that receives high customer ratings for its ease of use and includes a feature that helps customers adhere to a monthly spending budget.

"Every month my bank provides me a overview of my expenses and tells me if I spent more according to the budget I set up a couple months ago," said Peter Gernát, 23, a banking student at the University of Economics in Bratislava, Slovakia, and a worker at market intelligence provider Market Vision. "Probably the greatest feature is ATM mobile withdrawal. I don't have to use my debit card when I want to withdraw my money. I just use my mobile app."

Bain believes banks should focus on six key goals in developing apps: "extraordinary design discipline"; "radical simplification"; communication via "anytime, anywhere chat and video calls"; faster development of new features; "personalization… so that only relevant information is displayed to the user"; and "organizational agility" that breaks down barriers between departments and developers.

The new world for banking, though, is not totally impersonal. Shaheen, the Dallas executive, said he still prefers to go to his local Fidelity office to discuss his financial affairs through that institution, for instance.

Bain's du Toit said individualized customer service is still important, despite the growing trend to mobile.

"We talk about it as 'mobile first' as opposed to just mobile. It's not as though you'll ever get to the point of doing everything through the mobile process," he said. "People still matter."