The Evolution of Banking in the Face of a Digital World

When was the last time you went into a bricksand-mortar bank, stood in line behind real people, and waited to deposit a check? Or, cash in hand and music coming from your car’s CD player, you pulled next to the drive-up at the bank and used a pneumatic tube to transport your transaction to a smiling teller? Sounds like ancient history doesn’t it? I recently happened to pass by a local bank branch near the grocery store where I shop and noticed that the building is now a fitness/yoga facility.

These types of scenarios are a reflection of the change in bank / customer interactions and how customers are turning to, and in fact expecting, digital to meet their changing lives.

As a result, we are seeing new digital tools and technologies turning existing business models upside down – or at least knocking them on their side – across virtually every industry segment and banking is front and center.

What we are seeing in the banking and financial services sector is the emergence of fintech, or financial technology institutions. Sometimes they’re referred to as startup “neobanks” or “digital challenger banks.” Without branches, they offer a 100% digital-first experience for handling day-to-day banking services using mobile apps. Some of these new smaller fintech banks launch very specific, very targeted digital offerings towards a particular customer segment -- primarily millennials and Gen Zs -- and immediately start capturing customers from traditional banks.

Here’s a case in point. Earlier this year, a market opening was created for the San Francisco-based digital banking start-up Chime. Because of issues some larger banks were having, Chime gained more than 10,000 new accounts in a matter of hours. It also gave them an opportunity to broadcast one of their differentiators: “Bank fees? What are those?” they cheekily tweeted out.

Today’s reality is that banks are being acquired, branches are being downsized and their roles redefined. Chime is just one of the many emerging challenger banks and startup fintech banks that are disrupting the traditional financial institutions.

Are traditional banks destined to ride off into the sunset, to be replaced by banking apps that give millennials the “awesome” digital banking experience they want, such as payments, deposits, loans and such?

There are important issues and concepts incumbent banks must be aware of. Advances in technologies such as natural language processing (NLP), machine learning (ML), and artificial intelligence (AI) are driving these digital changes and spurring the further evolution of banking. And remember, the digital transformation includes not only web and mobile customer interactions, but most, if not all, bank functions to make these interactions always available and immediate.

I believe that just as there will always be music purists who prefer to listen to a vinyl phonograph record or still want their CDs, there will be those who want to speak to a personal banker face-to-face or require amenities such as safe deposit boxes. While not everyone, even millennials, will always choose to rely entirely on their smartphone for banking, digital options must be offered if a bank today can expect to be around in the future.