Direct Banks are financial institutions that operate without branch locations. Services are offered through online and mobile banking, as well as telephone and mail. Direct banking has been around for a while, however when it was first established, customers banked through just telephone and mail. Direct Banks have become more of a consideration for people now as online and mobile technology advances and usage of this technology increases. According to a study conducted by TNS, deposits for Direct Banks have more than doubled in the past 5 years, a growth rate that is more than 3 times the industry average. Mobile and online banking has become more and more advanced, allowing Direct Banks to offer new services that enable their customers to handle nearly all of their transactions online or through a mobile phone. Some of these transactions include depositing checks by taking a picture of them, sending payments via e-mail or text message, as well as handling of the more routine online transactions such as transferring funds between accounts and paying bills.
While it may seem frightening to some to deal with a bank that has no branches and no “faces”, there are many incentives these Direct Banks provide to attract customers. Direct Banks are able to offer these incentives largely because they do not have to cover the costs of operating and maintaining any branch locations.
Incentives to Using Direct Banking
- Higher interest rates
- Lower fees on products and services
- Members of large ATM networks (i.e. Allpoint Network). In some cases, Direct Banks even reimburse a certain number of ATM fees, so that you can use any ATM in the country without having to pay for it.
- Typically more advanced mobile applications to handle transactions
A few examples of Direct Banks
- Ally Bank, USAA, Capital One 360 (originally ING Direct), etc.
Again, the fact the Direct Banks have no branches means no face-to-face contact, which many customers appreciate and often deem a “necessity”. Our research has shown time and time again that even though customers are using the branch lobby less and less, customers still place a high value on having a bank’s branch lobby and in-person customer service available if needed. Despite these findings, the decreased usage of branches (particularly among the younger age audiences) combined with the incentives offered by Direct Banks, users seem be getting just enough of a push for them to give up branch lobbies and face-to-face contact and utilize Direct Banks.
Based on our past research, the key to retaining customers in this industry is delivering superior customer service, particularly in times of need. The few experiences customers actually have with financial institution’s staff usually weight heavily and are a main driving factor behind overall satisfaction and likelihood to recommend the financial institution. In order to continue to be successful, Direct Banks will have to demonstrate their customer service ability, and in order for traditional banks to stay competitive, they will likely have to keep up with the mobile offerings of these direct banks and most importantly, demonstrate the value of in-person customer service and interactions.
What are your thoughts on the future of banking? How many people do you believe are willing to switch to a Direct Bank? Comment below.
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