This is an evolving article, it was last modified Sep 13, 2021

Industry trends are driving digital banking innovation. Digital banking itself is no longer an innovation that helps a few firms stand out. Rather, accessing and managing accounts digitally from websites and mobile apps is an expected feature of deposit banking. With outside pressure from digitally innovative challengers reimagining longstanding practices, banks of all sizes must react to emerging banking industry trends if they wish to thrive in an increasingly competitive market:

  • Prospecting and account servicing were already shifting from physical to online channels. Sudden coronavirus-related closures across the country accelerated this movement.
  • The nation collectively grapples with a pandemic and renewed calls to address racial inequity. Firms must respond to clients’ personal and financial needs with empathetic messaging and impactful actions.
  • Best-in-class digital banking will require enriching digital platforms with AI-powered personalization and insights.
  • Aggregation, cross-selling and loyalty incentives are increasingly important. Firms need to create full-service platforms that meet all clients’ financial needs.
  • Accelerating digital shifts also requires improved money movement. Recently introduced fee-free real-time options are likely to become standard.

Digital banking innovation, specifically a digital-first approach, increases competition within the industry

Banks of all sizes face more competition than ever. Traditional banks, startups and big tech firms increasingly rely on digital channels to reach customers. The COVID-19 pandemic has made the already visible advantage of innovative digital banking even more apparent. Demand for robust digital banking spans every platform, as firms must take an omnichannel approach—offering comparable features across sites and apps. Notably, a 200% increase in mobile banking registration and an 85% surge in overall mobile traffic due to March and April branch closures highlights the need for mobile innovation.

Robust digital platforms are essential in a world saturated with online solutions.

Those who made digital banking innovation a priority adapted quickly to pandemic-related closures in 2020. Stragglers, meanwhile, scrambled to meet urgent customer needs. Innovative digital bank Chime stood out by using its overdraft alternative to get many customers early access to economic impact payments. As more innovate digital banking, their focus is shifting from websites to mobile devices. In line with this shift, the pandemic also spurred firms to promote existing mobile features on public sites. Since March, some added tutorial videos, while Truist and Wells Fargo debuted unique interactive demos.

Wells Fargo mobile app interactive demo

Digital banking requires interactive support to meet inquiries quickly and efficiently.

Interactive customer service is a defining feature of digital banking innovation, even when digital tools can serve most customer needs. Unprecedented call center volumes at the onset of the pandemic highlighted gaps in many firms’ digital support channels. Firms that made live chat widely available stood out during this period. In Corporate Insight’s 2018 consumer banking survey, 49% of Millennial respondents rated virtual assistants as an important digital banking feature. Firms should also support call centers by allowing clients to request calls from customer service digitally instead of calling in and waiting on hold. Banks should look to Amazon’s virtual assistant capable of serving various needs through a prompt-based system. A customer service icon also allows users to request live support. The virtual assistant then connects them to chat on the same platform or requests someone call the user directly.

Amazon virtual assistant

Expansive digital platforms warrant an evolution of branch models.

The pandemic forced many smaller banks to pause branch expansions, but most large banks still plan to expand into new markets. The purpose of branches instead continues to evolve, as digital banking innovation supports more routine needs. Banks will strategically scale down overall branch count by reducing footprints in existing markets even as they expand into new ones. Bank of America’s approach to branch modernization focuses on virtual assistance. Its Advanced Centers are tellerless branches where clients can:

  • Interact with a banker remotely via video conferencing technology
  • Access advanced ATMs with more cash withdrawal choices
Bank of America telebanking Advanced Center remote banking
Bank of America Advanced Center

Client-oriented approaches address needs with empathetic messaging and impactful responses

Banks continue to face significant reputational challenges. Perceptions that the industry lacks transparency plague banks that continue to rely on penalty fees for revenue or engage in exploitative sales practices. These perceptions allow digitally innovative challenger banks to market accounts with minimal fees and a commitment to transparency. Bank must take a similarly client-centric approach to stave off these threats.

User satisfaction with primary banks

Fintechs reach the underbanked and point the way forward for better banking practices.

Traditional accounts with minimum balances, monthly fees and extensive fee schedules leave many underserved by their banks, leading some customers to seek alternatives that offer more overall value. Enter digitally innovative challenger banks undercutting traditional institutions by eliminating fees as well as balance or direct deposit minimums. These neo-banks innovate further by avoiding overdraft practices that collectively cost Americans over $11 billion in 2019. Firms like Chime and Varo stand out with early paycheck availability and fee-free overdraft coverage for eligible clients. These practices afford users greater flexibility to meet financial obligations without incurring potentially steep penalty fees.

Fintech banking options - Chime early paychecks
Chime Direct Deposit Screen
Fintech banking options - Chime early paychecks
Chime SpotMe Screen
Fintech banking options - Varo fee-free overdrafts
Varo No Fee Overdraft Screen 1
Fintech banking options - Varo fee-free overdrafts
Varo No Fee Overdraft Screen 2

Empathetic messaging and impactful responses strengthen client relationships.

Treating clients as valued partners rather than sales opportunities appreciates their business and aids retention. Banks should adopt this mentality in all outreach with clients but especially when addressing current events. The crises that characterized 2020—a global pandemic and renewed calls to address racial inequity—required banks to respond with new approaches.

Many banks failed to reach clients early in the pandemic. A JD Power survey conducted in mid-March found only one in three consumers received helpful outreach from their primary bank. By March 30, however, all 18 firms in the Bank Monitor coverage group addressed concerns with public site notices or specific outreach. Some of the most impactful messaging came from Ally. First, the digitally innovative direct bank outlined explicit relief measures available to all. Then, the firm informed clients about declining rates with a special offer to accelerate earnings.

Banks take client-oriented approach to COVID-19 messaging - Ally Bank
Ally Emails Addressing COVID-19 with Specific Relief Options and Notifying Clients about Fed Rate Cuts and Decreasing APYs

When George Floyd’s death sparked protests around the nation, companies had to address an emphatic call to action. Meeting the moment requires more than reaffirming commitments to equality and making token donations. Firms should also respond with specific measures that align with such commitments and create lasting change for the good of clients and employees. An immediate response from Ally replaced its coronavirus public site notice with its Commitment to Racial Justice and Equity in Our Communities. The linked page includes specific measures supporting outside initiatives and focusing on the advancement of employees of color. Several other banks followed with public site notices, while Santander and Truist also closed branches early for Juneteenth. Netflix, meanwhile, plans to shift some of its cash holdings to typically underfunded financial institutions, like Hope Credit Union, committed to supporting Black communities.

Banks take client-oriented approach to racial equality messaging - Ally and Santander notifications
Ally and Santander Public Site Homepage Notices
Banks take client-oriented approach to racial equality messaging - BB&T and SunTrust Truist emails
Truist Emails Regarding Juneteenth Branch Closures

AI-powered insights will allow banks to personalize experiences to clients’ circumstances

Financial accounts provide a wealth of data that firms can analyze to deliver targeted insights to clients. This personalized advice increases overall engagement and brand value. The development of open banking and account aggregation provides even more data for leading firms to address all their clients’ financial needs. As the digital banking market innovates further, AI-based personalization will distinguish firms prepared to offer a unified banking solution.

Early adopters—including Bank of America, Chase and U.S. Bank—show the potential of AI-based technology. Existing applications address customer needs with relevant information without intervention by an advisor or customer service agent:

  • U.S. Bank stands out for powering its entire app with AI and embedding personalized insights throughout.
U.S. Bank AI-powered mobile app
U.S. Bank iOS App Cash Flow Insight
  • Bank of America delivers its insights through its proprietary virtual assistant, Erica.
Bank of America mobile app Erica AI virtual assistant
Bank of America iOS App Erica New Insights Greeting
Bank of America mobile app Erica AI virtual assistant
FICO Score Tracker Insight
  • Chase delivers insights via a dedicated Daily Snapshot interface.
Chase Bank AI-powered mobile app Daily Snapshot
Chase iOS App Cash Flow Insight
Chase Bank AI-powered mobile app Daily Snapshot
Checking Balance Insight
Chase Bank AI-powered mobile app Daily Snapshot
Savings Balance Insight

Proactive insights will enrich innovative digital banking experiences.

Maintaining innovative digital banking will require banks to send proactive outreach, personalized to clients’ circumstances and behavior. Through AI-powered insights, the best firms can suggest actions that will improve clients’ financial well-being through better spending and savings habits. Bank of America’s Erica can alert clients on track to spend more than their account balance, remind them of upcoming payments, identify duplicate charges and help monitor recurring charges. Monzo, a digitally innovative challenger bank from the UK, notifies users when merchants check for an active card to start a subscription’s free trial. Banks could further improve features like this by setting a timer and reminding clients to cancel before the trial expires.

Digital banking innovation from Monzo app AI-powered insights
iOS Monzo Card Check Notification
Digital banking innovation from Monzo app AI-powered insights
Transaction History Screen

Comprehensive financial platforms that employ digital banking innovation help firms keep the primary relationship with clients

Firms with a focus on digital banking innovation are actively transforming their sites into broad, integrated financial service platforms. In recent years, CI has observed increasing adoption of aggregation tools, cross-selling efforts and loyalty programs from incumbent firms. Meanwhile fintechs have expanded beyond initial offerings into broader financial service markets. Banks must be agile in their response to remain competitive; improving client relationships and online platforms will do much to retain or even increase client bases.

Aggregation services help clients maintain oversight of their finances.

Increasingly, firms are adding aggregation services that allow clients to view information from other banks on a single platform. Of the 18 firms in the Bank Monitor coverage group, eight (44%) currently include an aggregation tool on their sites. As aggregation becomes more common, APIs and other open banking initiatives will increase the security, timeliness and capabilities of such platforms.

Chase Bank account aggregation tool
Chase Authenticated Site Aggregation Tool

Fintechs build customer loyalty with one innovative product, then branch out.

Many digitally innovative challengers in financial services first attract a loyal customer base with an innovative approach to a traditional financial product. Then, they lean on loyal client bases to expand into new markets. Banks should stay abreast of these startups even when their core offerings do not directly compete in case future expansion encroaches on other lines of business.

  • Many investing startups moved into the transactional side of finance with debit and cash savings offerings
  • Some lending fintechs have launched or announced deposit banking products to generate low-cost deposits and finance future loans
    • In early 2019, online lender SoFi announced SoFi Money, a high-yield hybrid cash management account for spending and saving cash holdings
    • In June, popular point-of-sale lender Affirm introduced a high-yield savings account
  • Other challengers are expanding by partnering with tech giants to launch new products through digital wallets
    • In May, Samsung announced its digital wallet will someday include a SoFi-backed cash management account
    • In Summer 2019, Apple launched its Goldman Sachs-backed Apple Card
    • In November 2019, Google announced a Google Pay-integrated debit account backed by several partner banks

Better money movement adds flexibility and convenience, creating sticky relationships

Firms should also focus their digital banking innovation on improving money movement. The easier it is to use checking accounts, the more likely clients are to keep money with their bank. Fees and delays, meanwhile, can discourage clients from adding funds to an account as much as such obstacles incentivize them to maintain balances.

Real-time availability affords clients more flexibility in times of need.

The best experiences often deliver as quickly as possible by removing as many obstacles as possible. Money movement, particularly when submitted digitally, warrants instant delivery to meet shifting consumer expectations. Person-to-person payment practices have set the gold standard for real-time money movement, with funds arriving instantly to the recipient’s account. ACH transfers between accounts clients hold at different institutions, however, typically involve a two-day delivery window. With infrastructure for real-time transfers finally coming into place, every bank should prioritize making instant transfers a reality for their clients. Within the Bank Monitor coverage group, only Chase supports instant transfers to a limited selection of other firms.

Chase Real-Time Delivery Option

Unified, consistent experiences empower clients to transact with their accounts.

Firms can improve money movement further by creating consistent experiences across bill pay, P2P, internal and external transfers, and wires. While back-end servicing requires treating each service differently, there is no reason for digital banking platforms to present them in drastically different interfaces. Chase, again, sets a strong example when it comes to money movement. Each scheduling journey—and related interfaces—employs a similar overall structure and design, albeit with some service-specific modifications. Because these journeys are so similar, clients enjoy a predictable experience that empowers them to use a wide range of services with ease. Chase also uniquely combines bill pay and Zelle services into a consolidated payments hub, introduced in June 2019.

Chase Bank unified bill pay and P2P interface makes for better digital banking money movement experience
Chase Unified Bill Pay and P2P Interface

Eliminating transaction fees incents increased engagement.

With no fees for P2P and bill pay, as well as across the board for fintech options, banks should also eliminate fees on other services, like ACH transfers. While they may be reluctant to lose revenue, fee compression alone will force banks to expand their fee-free banking services. Those that do so proactively may find that removing fees and other obstacles creates stickier relationship with clients who will come to rely on money movement services. While fees for outgoing transfers may incent clients to keep current deposits in an account, the barrier to using their money freely may cause them to rethink an entire banking relationship.

Few firms still charge clients a fee to transfer money out of their accounts

Digital banking innovation is trending toward fewer transaction fees