Branch Out: How the pandemic made in-person banking obsolete

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by Zviki Ben-Ishay, CEO of Lightico

The COVID-19 pandemic is less than two years old and yet already “everything is different after the pandemic” has become a cliché. It goes without saying that “everything” absolutely includes the bank. COVID has changed the way we earn and spend our money, so it stands to reason that the ways we save and invest our money must change as well. The banks and trust organizations best able to adapt to these new changes will see the least disruption as we find our new normal and set the stage for the evolution of the entire banking industry and service. adequacy of its clients during and after the crisis. But to do that, they need to recognize how banking trends are pointing towards usability and convenience and away from branches and fees.

When the COVID-19 pandemic struck, many experts predicted that frightened consumers and investors would start a ‘flight to quality’, shifting their assets from smaller banks and neobanks to larger banks that would appear to be more bets. safe to overcome the crisis. “Quality” here is a polite way of saying “too big to fail” – in the event that COVID causes a real crash like in 2007, big banks are more likely to receive a government bailout, theoretically making money safer. in a standing organization no real chance of sinking. Of course, the more people’s money flows into these banks, the more of a self-fulfilling prophecy it becomes.

At first, this prediction turned out to be true. The big banks benefited from a noticeable increase in deposits when the pandemic first gained momentum. But as consumers began to realize what the pandemic and self-quarantine really involved, those same big banks found one of their main selling points – their physical branches – to be a major weakness.

Bank branches have historically been more popular with older consumers, who prefer the face-to-face interaction and sense of stability offered by a physical location with the comforting attributes of a trust organization. Being older, they have generally found it difficult to switch to mobile banking, which is on the rise among younger consumers, most of whom avoid branching out whenever possible. With mobile verification getting easier and fewer businesses using cash-only payment models, the need to go to an ATM has all but disappeared.

The convenience of online banking is exactly what bodes so badly for the post-pandemic future of big banks. Stuck at home for their health, older consumers and others who preferred in-person banking were forced to switch to an online model. And evidence shows they plan to stick to it even after COVID is dealt with. For many people, the barrier to online banking is the perceived usability, but because online banking is now so streamlined and convenient (many banking apps require a face scan instead of a password to do so). access), the very user-friendliness outweighs the need to go visit a bank and queue up just for that personal interaction and nostalgia (which, without that barfrier friendliness, are really all a branch’s offerings.)

With the move away from in-person banking, physical branches are suddenly shifting from a need to keep certain demographics business to an outright liability. Maintaining each branch is expensive, often in the high six figures per year. To maintain this existing real estate, the big banks have to charge fees for overdrafts, low account balances and only basic services, which can account for 40% of income. And these fees disproportionately target economically disadvantaged populations, including many elderly consumers, who turn to neobanks that charge no fees because they have no physical branches to maintain. Suddenly, these magnets for traditional bank customers have become expensive albatrosses around the necks of the big banks.

So while some accounts shifted to big banks early in the crisis, as the pandemic ended (albeit far too slowly), the banking landscape is moving away from older organizations with legacy infrastructure. Being stuck inside has forced even bank branch devotees to switch to online banking, which benefits neobanks, whose lack of fees to support this infrastructure makes them more adherent to new users. So while there has been a short-term “flight to quality”, the long-term “migration to convenience” caused by the pandemic will eventually change the face of banking forever. And just as the transition to working from home can be a rare silver lining of convenience and independence for workers in the wake of the horrors of COVID, the end of physical branches and the shift to toll-free online banking is finally. a blessing for consumers.

[Bio for Zviki]

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