Wipfli logo
Insights - Articles, Blogs and on-demand webcasts

Articles & E-Books


How Are Traditional Banks Dealing With Competition From Digital-Only Online Banks?

Jun 19, 2019

Historically, traditional banks have been serving their customers primarily through their physical branches staffed by actual people, venturing into other digital channels only to serve as secondary avenues through which to deliver some of the on-demand services. 

Relationship banking has been, and continues to be, the foundation on which a majority of the traditional banks sustain their business. This brings to mind a very similar path into the digital world that the retail industry took back at the turn of the century in order to compete with the online-only shopping portals that made a dramatic entrance into the hitherto traditional retail industry. 

As the name clearly suggests, a digital-only bank starts without the legacy of a brick and mortar operation, entering the banking landscape directly via the online channels. Digital-only banks deliver their offerings almost singularly through digital channels such as apps on smartphones and tablets and web portals, heavily leveraging software to manage workflow, analytics for personalization, and chat-bots for standard customer interactions in the form of Q&A and directing traffic. Actual human interaction is a last resort, which is most likely to be through a remote WFH (work from home) workforce that may fall into the category of a “gig economy.”

Traditional banks are certainly taking notice of this here-to-stay digital disruption to their industry. It is a fact that many customers still choose to walk into a conveniently located branch of their bank, complete their transactions with the help of a bank employee, perhaps while enjoying a chat and a cup of coffee. Does this conjure up an image of traditional banks staying put, ignoring the competition from the digital-only, branchless banks and comfortably nestling in their own complacent cocoons? Nothing could be further from the truth. 

Even as they serve their customers with a personal touch and spend marketing dollars to attract the next generation of customers to enjoy the personalized banking experience on offer, traditional banks are taking steps to expand their channels of customer connect and service delivery into digital avenues. In other words, players in various segments — large, medium and small — of the banking industry are readily and rapidly embarking on digitally disrupting their own domains by making themselves accessible through multiple channels in addition to the brick and mortar establishments. 

The target audience for this omni-channel disruption is as much the next-gen customers as the existing client base. It is a well-known fact that a significant ratio of the millennials, Gen X and Gen Z prefer digital channels.

Traditional banks have embraced many of the differentiators that the digital-only banks brought with them. 

Key among these are the extensive use of analytics-based personalization to provide helpful guides to their target audience. In these days of notifications via smart phone apps, it is relatively easy to send various account-related alerts, spending patterns, promotional offers, “helpful” tips for shopping based on the customer’s location, bank balance, and so on — features that are particularly attractive to the younger generations.

The line between many of the traditional banks and digital-only banks is getting blurred with each passing day. It is safe to say that digital-only banks can no longer claim to be the only banks “always open” for business, nor can they claim to be the sole providers of complete visibility into and on-demand access to customers’ finances. 

It would not be out of place to ask some key questions that may come to mind when comparing the abilities of traditional banks and digital-only banks to embrace the digital disruptions that are in play.  

  • How can traditional banks manage to maintain their current way of doing business even as they strive to stay abreast of the lean and mean competition? 
  • Are they not saddled with legacy technologies that make it hard to get into the modern age of digital banking? 
  • What about the cost of doing business through both traditional channels AND digital channels? 

Driven by the mantra, “Perform while we transform,” traditional small- and medium-size banks have been either investing in upgrading their technologies or partnering with innovative technology companies. 

Some of the areas where such investments and partnerships help are increasing retail deposits, online lending, online peer-to-peer payments and customer user experience. These are typically enabled by implementing data warehousing for enhanced analytics, mobile applications, ready-to-deploy third-party technologies and platforms, better customer relationship management (CRM) systems that provide 360-degree insights into their customers’ habits, preferences and forecasts, etc. 

These investments in technological readiness enable traditional banks to offer most of the features that digital-only banks enjoyed a stranglehold on until recently. Some additional examples include easy account freezing, emails and text messages, profile updates, security management including multi-factor authentication, etc.

A key concern of customers is safety in banking. While digital-only banks were quick to leverage various authentication technologies such as fingerprint scanning, facial recognition, voice recognition and multi-factor authentication, the underlying foundations for these technological means are still evolving. Understandably, governance and regulation are still evolving and catching up with many of these technological advancements. This state of affairs works to the advantage of traditional banks because the elapsed time and the luxury of an existing customer-base are providing them a window of opportunity in which to solidify their own security protocols.

It might be reasonable to conclude that traditional banks are determined to make all-out efforts to ensure that their current and prospective customers will comfortably and confidently declare, “I will stay with my traditional bank because they provide me with all the facilities that a digital-only bank offers, serve me in the manner that I prefer to be served, and solidly ensure the safety of my account like they have always done for generations.”


Wipfli logo square

Wipfli Editorial Team

Video: Benefits of Co-Sourcing Your Internal Audit Plan
You don’t have to stress about making sure your internal audit plan is completed on time. Together, we work with you to identify risks, update processes and finalize your plan. Reinforce your team with the support you need to complete your annual internal audit plan with confidence.