Bharat Pe, a three-year-old payment bank is all set for 50% ownership of the beleaguered Punjab and Maharashtra Cooperative Bank. A start-up has been rewarded with a banking license, which is, to say the least, not very common. A Fintech start-up that will enter banking triggers some interesting questions. Will banks adopt fintech business models? What is the role of banks in the future? Or what is the ‘future’ bank going to look like? Will the physical walls crumble and give way to firewalls?
To address these evolving questions, Dr. KS Ranjani and Dr. Anjali Chopra conducted qualitative research with both customers of digital banking services and financial service providers to understand the drivers of the depth of digital banking adoption.
We spoke to 20 customers of digital banking across nationalized banks, public sector banks, and foreign banks, and 10 financial services professionals including bankers and payment solution providers. In-depth interviews were conducted with the help of a discussion guide. The discussions covered the following areas:
- Participants’ attitude towards digital banking,
- Motivation for depth of adoption and
- Impediments to a depth of adoption.
Further, the authors examined some of the characteristics where peripheral adapters (infrequent and not regular users of digital banking) of digital banking differed from in-depth (active and regular users) adopters.
What do Customers Think about Digital Banking?
“Digital banking is the need of the hour. I no longer need to waste time in bank visit, not to mention that it is also environment friendly as it is paperless.” – Customer, 45 years, Male, Account holder of a Private Sector Bank
“I am in charge of my money, and I can manage it better due to digital banking. I can block my card, open a fixed deposit, transfer funds online without any time constraints.” – Female, 45 years, Account Holder Private Sector Bank
Our study attempted to measure the overall attitude towards digital banking and the reasons for the same. Active users of digital banking had a favorable opinion of digital banking. Most of them reported having either downloaded more than one mobile banking application or had more than one internet banking account. The key drivers that created a positive attitude towards digital banking were transaction autonomy, independence, and sense of control, and better management of financial transactions. The advancement in digital offerings and the convenience of paperless transactions created a positive state of mind towards digital banking. Most of the users had one preferred digital banking application that they used frequently, and the reason stated was the reputation and image of the bank.
What Motivates Customers to Adopt Digital Banking Solutions Extensively?
“I am able to transfer cash, pay off a loan, park funds in the account of my choice, and create a deposit or any other financial product of my choice. The walls of the bank have collapsed, and I am the master of my money. The phone is my faithful servant,” – Male, 35 years, Account Holder at a Private Sector Bank
Users that preferred digital banking and rarely visited physical branches identified key motivators that resulted in in-depth adoption. These included convenience due to 24×7 availability and absence of time constraints or “banking hours”. Service quality, especially the tangible aspect of the user interface, and support offered through chatbots and helpline numbers were additional considerations.
Users of digital banking affirmed that rather than finding digital banking complex or risky, the transaction autonomy in performing routine transactions like checking account balance to complex transactions like opening a mutual fund or paying their utility bills online benefited them greatly. Adoption of online banking depended on the user’s comfort with technology, but the extent of usage depended more on the complexity of the user’s banking needs.
“I have huge emotional comfort since I can check my account balance anytime anywhere. Also, I am not dependent on the bank’s timings to manage my funds. I no longer need to stand in long queues and I can decide what to do with my money in an instant.” – Male, 40 years, Account Holder, Public Sector Bank
Transaction autonomy, self-reliance, and control on the time, place, and method of transaction helped customers feel in charge and motivated them to perform more transactions digitally. Hence, a customer felt empowered and in control of time as well as transaction autonomy. Digital banking empowered customers and enabled them to use digital banking services extensively.
What Factors Impede Adoption of Digital Banking?
“I am used to visiting the branch as a ritual and therefore am averse to digital banking. I feel comfortable speaking to my relationship manager and getting my queries clarified.” – Female, 60 years, Account Holder at a Private Sector Bank
“Many of our customers say that they are not comfortable with the support extended on the digital platform. Hence, they prefer to visit the branch and speak to the staff.” – Relationship Manager, Male 35 years, Public Sector Bank
Interestingly, those that were infrequent users of digital banking stated that they preferred human interaction for complex transactions and perceived digital banking to be riskier especially in situations when there were issues with internet connectivity leading to incomplete transactions. Incomplete transactions resulted in tedious follow up with banks and often, a lack of proper information and the inability to track down the money.
“For most customers, it seems that digital banking is a tedious and cumbersome process. Training program explaining the basics of digital banking would be very useful” – Male, 48 years, the Account holder of private sector bank.
The response to digital banking has been mixed given that the respondents’ banking profile included both peripheral and in-depth adopters. We found a skew in the age (45 and above), gender (women), and marital status (married) of peripheral adopters. They had a lower propensity to use social media, e-commerce as well as banking applications. Their online activities were restricted to chatting and YouTube views. They preferred to visit bank branches for their regular banking needs. On the other hand, in-depth adopters were younger, unmarried, and mostly male. They tended to be online and carried out diverse activities such as social media, e-commerce, and banking. Banks will need to handhold peripheral adapters and transition them into digital banking by use of short videos, simple tips, financial advice, etc. In-depth adopters, on the other hand, may need more curated products, dashboards, and diverse product offerings.
Our findings indicate that digital banks may be the way forward. Is the industry taking a definitive turn towards digitalization? Can banks continue to be brick and mortar models? Consumers today demand digital experiences. While consumer expectations keep evolving, the pandemic has radically changed the consumer landscape. From shopping and entertainment to food and banking, consumers opt for contactless and easily accessible products and services.
Given that most customers are now familiar with using online channels, the question is not about whether consumers will adopt digital. The rise of fintech and neo banks which are not burdened with archaic legacy platforms and are agile and nimble to anticipate changing consumer needs necessitates traditional banking to question what the extent and depth of digital banking adoption are by their customers.
As more customers become comfortable using digital banking services, the question is not whether they will adopt digital banking, but how much of all their banking requirements would be fulfilled by digital banking services. Brick and mortar banking models that have a retail focus with a small digital presence may find it difficult to retain their market position.
Technology can change the landscape for financial institutions by going beyond services like digital account opening, offering instant loans, loan closure, etc. to focusing on contextual product offerings, digital campaigns, wealth advisory services, and usage-based alerts.
The DIY digital millennial who is extremely adept at navigating multiple screens, acquiring new skills in the way they shop, consumer entertainment, and information, continues to remain dependent on others when it comes to financial planning and advice. For the bank, holding real-time data is a goldmine because credit risk assessment and product pricing based on the creditworthiness of the customer could preclude the need for a costly physical branch network.
As the world continues to battle successive Covid waves and intermittent lockdowns become the new norm, the role of banking in the future is clearly going to be digital. Many more inefficient, capital depleted banks may be up for grabs, and fintech companies taking over these banks could redefine the business model and redefine the banking landscape.