COVID has fast tracked trends & habits in banking, credit unions are well positioned to be leaders
Submitted by David Schurman, Chief Strategy Officer, FirstOntario Credit Union
Think back to February 2020, just over two years ago as COVID-19 was about to arrive in North America. COVID has changed all of us in many ways in terms of how we go about our everyday lives — at work, at home and at play. Out of necessity, these changes have forced us to create new habits during the pandemic. Some of these changes and habits may gradually lessen or even go away, but some will stay forever.
Some have been trends that had already started before COVID and the pandemic simply fast tracked the change, such as the personal financial trends away from cash, cheques, and in-branch banking, being replaced by credit/debit cards and self-serve digital banking. Best-selling author and banking trends prognosticator Brett King, in his 2010 book Bank 2.0, predicted some of these trends. King didn’t predict a pandemic would hit us, but he did see the writing on the wall in terms of how people would conduct their banking and their personal financial affairs in future. Let’s examine a few of these personal finance changes that had already begun and were fast tracked by COVID.
The trend away from branches:
· The number of financial institution (FI) branches had been declining for a number of years before COVID. In Britain, the number of bank branches had fallen 44 percent between 2010 and 2020. North America had been trailing other countries in branch reductions but were still trending in that direction prior to COVID. For example, Wells Fargo, Chase, and Bank of America — three large US banks — had been reducing the number of branches by a few percentage points every year. What had been decreasing even more rapidly than the number of branches is the “size” of branches. Using Wells Fargo as an example, by 2015, Wells had reduced the number of their branches by approximately 10 percent, but they had also reduced their branch footprint (total square footage) by 22 percent overall.
· FI’s around the world continue to reduce branches. One of the largest banks in Sweden, Handelsbanken, announced last year they would be closing 50 percent of their branches in the next two years. Canada’s big banks cut just over 6 percent of their branches since 2020, with plans to further reduce. RBC’s CEO commented that RBC would likely cut another 30 to 50 branches this year, which is 3 to 4 percent of their total. Banks and credit unions alike in Canada are also continually reducing the average square footage of their branches. This is a reflection of many consumers still wanting a branch nearby, but not using the branch nearly as much as they have in the past. Why is that? See the next trends…
The trend towards consumer friendly, self-serve banking technology:
· TD Bank reported an increase of 57 percent in the adoption of digital banking services in 2020 by their banking customers in Canada and the US. TD is one of Canada’s five big banks, and they also have a large presence south of the border as one of the top eight banks in the US. TD says that most of their customers are now active in on-line banking, mobile banking, or both. TD customers are not alone. Most bank customers and credit union members in Canada are now using at least some digital banking tools, and many are performing most, if not all, of their banking on-line or through their FI’s mobile app. This trend will only increase in the future.
· Why would anyone want to hop in their car and travel to a branch to deposit a cheque, when they can simply take a picture of the cheque on their phone, while sitting at their kitchen table, and deposit it directly into their account in seconds? Why would anyone want to write a cheque or obtain a money order and mail it, taking at least a few days to get to its destination, when they can e-transfer the same funds in a matter of seconds on their phone, from their family room sofa, and have the recipient receive and deposit the funds almost simultaneously? What does this mean for branches? A change in their role…
Bank and credit union branches transform from ‘transaction centers’ into ‘advice centers’:
· With the rise in digital banking tools for consumers, particularly the ease of using mobile banking apps, the role of the branch has been changing and will continue to change. No longer is the branch a place you must go for your everyday banking needs. A branch is rarely even needed now to meet your everyday needs. Even new accounts, new loans and deposit accounts can be set up digitally without the need to travel to a branch. When we need higher level personal financial “advice”, however, the branch is a place many consumers go for this advice. And when the advice we seek is for a larger need, such as a mortgage or retirement planning, branch staff are the preferred channel. We trust their professional knowledge and seek their advice. Even when we Google various financial products, services, and rates, we still often want to talk to an expert before we make key decisions.
· Nowhere is this advice more valued by Canadians, than at credit union branches. In 2021 Canada’s credit unions have been named by Canadian consumers in the annual “Ipsos Financial Service Excellence Awards” as the top financial institution in Canada for outstanding customer service. This is the seventeenth consecutive year that credit unions have finished first in overall customer service. Credit unions also finished first in four other categories, including “Branch Service Excellence”.
The decrease in the use (and need) for cash:
· Prior to COVID, cash had already been steadily declining in use. In 2009, when Canadian consumers were making a transaction in-person, we used cash to pay for the transaction 54 percent of the time. By 2016, cash was only used in 36 percent of in-person transactions in Canada. By 2020, that number was about 20 percent of in-person transactions paid by cash. And of course, all external transactions such as on-line shopping are paid digitally. By 2024, ‘FIS’ predicts that of all in-store purchases, cash will only be used in 4 percent of these transactions.
· With the need for cash greatly diminished, and the COVID concerns in handling cash and the germs it carries, visits to branches and even to ATM’s has decreased accordingly. Many people report they do not need to ever have cash on their person anymore.
· Along with the big increases in the use of credit cards and debit cards to pay for transactions, COVID transmission concerns have also increased the use of ‘tap and pay’ rather than inserting plastic cards and then having to touch the terminal to complete the transaction and enter PIN’s.
· The rise of digital wallets such as Apple Pay, Google Pay, Samsung Pay, etc. has even eliminated the need to carry and/or take out the physical plastic cards from your purse or wallet.
· Retailers for the most part, also do not want to handle cash because they must handle, secure, store and deposit it. Digital transactions are instant with the payment going into retailer’s accounts with no cash handling required. Studies show that consumers generally spend more when paying digitally rather than with cash, so retailer’s also like the increased transaction size.
· Digital wallets in 2020 accounted for about 24 percent of all in-store purchases, exceeding not only the use of cash for these purchases, but also exceeded the use of the physical credit cards and debit cards in-store.
· The decreased need and usage of cash is not only in younger consumers. Payment’s Canada reported that 62 percent of Canadians of all ages reported using less cash, with 42 percent stating they avoided shopping at places that did not accept contactless payment methods.
· Although the potential transmission of COVID drove people and businesses to frown on handling cash, the top reasons that Canadians prefer plastic or mobile wallets (according to Payment’s Canada), are discounts/loyalty rewards, widely accepted, fast, more convenient, and easier to keep track of expenses.
While changes in habits and trends tend to take years to transform, COVID has indeed fast tracked many parts of our financial lives. The decreased use of cash is a great example. Cash usage had reduced by 4 percent in the combined five-year period from 2014 to 2019, but after COVID hit in early 2020, the use of cash declined by a whopping 3 percent in one month (March 2020) and declined again by a further 5 percent in June 2020.
Age is not a big factor in the trends towards digital banking and the decreased use of cash. Seniors in Canada have been the demographic that has increased their usage of digital banking the most since the pandemic started. Seniors and older baby boomers were also the age group that were the slowest to adopt to digital banking, and it took the pandemic to convince many of them. Now that they are using these handy tools like e-transfer and mobile banking, their new habits are firmly here to stay.
At FirstOntario Credit Union, we have combined a few of these trends, realities and new technologies into a branching strategy that includes smaller branches, some as efficient as 500 square foot kiosk branches that utilizes Personal Assister Teller (PAT) technology. There are financial expert’s onsite to provide loans, investments, and financial advice, while most cash services at the branch are provided by PAT, an ATM like machine where PAT tellers serve members through live streaming video. A team of PAT tellers are centralized in a PAT call center and through this technology, the PAT teller team can service multiple branch locations across hundreds of miles in numerous communities. Another benefit of PAT is being able to provide these services to members at extended hours on evenings and weekends.
Another trend that continues to pick up steam is the drive toward more human-centered businesses. Research by Forbes shows that Canadians, and in particular younger generations, are more focused on ‘sustainability’ than ever before. So much so that according to Forbes, 73 percent of Gen Z’ers and 68 percent of Millennials are willing to spend more on sustainable services. Consumers are demanding that companies take more responsibility for the services they offer and the impact that companies have on society as a whole. Credit unions and other co-operatives are well positioned to be leaders in sustainability. Being owned and controlled by our members and the communities in which we serve, provides a unique opportunity to stand apart from other businesses and to take a lead role in sustainability and more broadly in ESG (Environment, Social, and Governance).