Digital Banking Emerging Trends In 2023

The surge of digital banking is evident as it encompasses various banking tools and trends. A significant number of Americans have utilized digital banking services over the past year, and numerous banks are introducing innovative digital tools like mobile apps and automated savings features.

As digital banking continues to gain momentum, there has been a decline in the presence of traditional banks with a 9 percent decrease in branch numbers across the country in recent years. While traditional banks provide access to branches, digital banks, offering online and mobile banking services exclusively, offer appealing yields and low or no bank fees.

To stay informed about the latest digital banking trends in 2023 and compare them with traditional banking statistics, read on.

Key statistics on digital banking

  • About 60 percent of consumers say they are very or somewhat interested in using a digital bank in the next year.
  • The generation most interested in digital banking is millennials (79.3 percent), while baby boomers are the least interested (33.8 percent).
  • Of those who are interested in digital banking, 43 percent say their primary motivator is to have improved transfers; 33 percent want lower costs, the second-most cited motivator.
  • Branches aren’t obsolete yet — of those who prefer online or mobile banking, 79.9 percent still visited a branch in 2019.
  • About 27 percent of Americans use an online-only bank.
  • Of those at online-only banks, 88 percent reported they are satisfied with the bank’s services.
  • Meanwhile, only 66 percent of consumers using traditional banks report being satisfied with them.
  • When it comes to banking satisfaction, 37 percent of consumers say no or low monthly fees is the most important feature they look for in a checking account — making it the top-cited feature.
  • Around 5 percent of Americans are unbanked, meaning they have no bank accounts.

Comparing Traditional Banking to Digital Banking

Traditional banks are brick-and-mortar establishments with a physical presence, and some of the largest U.S. banks, such as JPMorgan Chase and Bank of America, fall under this category. On the other hand, online banks offer their services exclusively through desktop websites and mobile apps, without any physical branches.

According to a study by fintech company Galileo, 65 percent of consumers use traditional banks as their primary bank accounts, while JD Power reports that 27 percent prefer online banks. However, out of the 65 percent who primarily use traditional banks, 77 percent disclosed that they keep some of their funds in other places.

To gain a better understanding of the variations between traditional and online banks, as well as the advantages of each, let’s delve deeper.

Traditional banking Digital banking
Services Primarily branch banking, though some may also offer online accounts Primarily online and mobile banking
Common savings account interest rates 0.01% – 0.02% APY 3.00% – 4.40% APY
Share of consumers’ primary accounts 65%* 27%
  • Wider selection of products
  • In-person customer service
  • Large ATM networks
  • Higher interest rates
  • Banking can be done anywhere
  • Lower fees
  • Higher fees
  • Lower interest rates
  • May require more documentation to open an account
  • Harder to make cash deposits
  • May have limited services and products

Traditional banking trends

Although traditional banks that have physical branches remain the primary financial institutions where people keep their primary bank accounts, their popularity is decreasing.

Over the last four years, there has been a decline of 9 percent in branch locations, resulting in the closure of approximately 7,500 branches, as per the National Community Reinvestment Coalition (NCRC), a nonprofit organization. A third of these closures were in low- to moderate-income or historically marginalized neighborhoods, with the COVID-19 pandemic doubling the rate of closures.

Online banking has impacted traditional banking positively, prompting many to change their approach to remain competitive. One of the most significant changes in traditional banking has been the reduction or elimination of overdraft fees, with banks such as Citibank, PNC Bank, and U.S. Bank taking this step.

Most large traditional banks now offer comprehensive mobile apps, enabling customers to perform basic transactions such as checking account balances, transferring funds between accounts, and making mobile check deposits. Advanced features like automatic savings options are also available in some of these apps, and some banks offer account opening bonuses to entice new customers.

Although traditional banks offer services through a bank teller, a preference seen more often in older generations than in younger people, in-person services continue to be a standard feature of traditional banks. Here’s a comparison of how different age groups access their accounts according to 2021 FDIC data.

Age group Percent who primarily use in-person banking services
15-24 4.1%
25-34 4.8%
35-44 6.3%
45-54 9.9%
55-64 16.5%
65+ 30.5%

Digital banking trends

Digital or online banks are those with primarily web or mobile services. While they don’t have branches, they may be part of large ATM networks, where consumers can still access cash. Online banks, such as Ally Bank and Discover Bank, have been a quickly growing market, with the digital banking market estimated to be $4.3 billion in 2021.

Without the cost of establishing and operating physical branches, online banks can redirect those funds elsewhere, such as yields offered on savings products or ATM fee reimbursements. Most of the top savings account rates are offered by online banks.

Digital banking is becoming more popular with consumers. Use of mobile banking as the primary method of account access, for example, increased from 15.1 percent of consumers in 2017 to 43.5 percent in 2021.

Another trend in digital banking is the emergence of neobanks, sometimes referred to as challenger banks. Neobanks are fintech companies that offer a variety of unique banking services, from regular checking accounts to advanced budgeting tools. Most neobanks are not chartered, but they may partner with FDICinsured banks to ensure that deposits stored are federally protected. Some popular neobanks include Chime, Varo and Current.

Digital banking by age

Digital banking is more popular among younger generations, with almost three-quarters of 15- to 24-year-olds reporting mobile banking as their primary way of banking in a 2021 study by the FDIC. Meanwhile, only 15.3 percent of those 65 or older reported using mobile banking primarily.

Here’s how use of digital banking channels (categorized as online and mobile banking) as consumers’ primary method of banking differs across age groups:

Age group Percent who primarily use online banking Percent who primarily use mobile banking
15-24 6.3% 74.1%
25-34 12.9% 69.4%
35-44 18.4% 60.5%
45-54 22.8% 49.1%
55-64 27.3% 33.2%
65+ 28.2% 15.3%

An Analysis of Digital Banking Across Various Races and Ethnicities

According to the FDIC, households made up of two or more races are most likely to use mobile banking as their primary method of accessing bank accounts, and white households are most likely to use online banking primarily.

Over half (52.3 percent) of multiracial households reported mobile banking as their primary method, while 45.4 percent of Black households and 41.1 percent of white households reported the same. Meanwhile, 25.8 percent of white households primarily bank online, compared with 25.7 percent of Asian households and 12.1 percent of Black households.

Race/ethnicity Percent who primarily use online banking Percent who primarily use mobile banking
Two or more races 20.6% 52.3%
Hispanic 11.6% 49.6%
Asian 25.7% 48.6%
Black 12.1% 45.4%
White 25.8% 41.1%
Native American or Alaska Native 13.3% 50.6%

Online banking

Online banking makes it easy for customers to open and check up on their bank accounts from any location where they have internet access. In addition to digital-only banks, many traditional banks offer online accounts too, such as the 360 Checking account from Capital One.

The COVID-19 pandemic had a significant effect on online bank usage. FICO, a data analytics company, reported in 2021 that 71 percent of U.S. consumers were willing to open an account online.

According to Galileo, 96 percent of consumers report security of accounts and funds as a top priority when opening a bank account. Online banks are just as safe as traditional banks, as long as they’re insured by the FDIC, which covers up to $250,000 per depositor, per account type. Bank websites are encrypted to prevent cybercrimes, and they typically require multi-factor authentication to ensure that no one hacks into your accounts.

Some online banks focus on a particular cause or consumer group. Limelight Bank, for example, invests the deposits from its certificates of deposit (CDs) into solar panel initiatives. Valley Bank, a regional bank with online services, has accounts specifically designed for those working in the cannabis industry, including cultivators and wholesalers of cannabis.

Online banking by generation

Though many might be quick to assume that the younger generations are more likely to use online banking, the highest usage of digital-only banks is with 35- to 44-year-olds. Of this age group, 29 percent have their primary account at a digital-only bank, while 26 percent of 25- to 34-year-olds do and 24 percent of 18- to 24-year-olds do, according to Galileo.

Age range % with online-only bank account as primary account
18-24 24%
25-34 26%
35-44 29%
45-54 18%
55-64 8%

Mobile banking

Many digital banks offer mobile apps where customers can complete basic banking activities, such as checking their balances and transferring funds between their own accounts or to peers.

Mobile banking as a primary method of accessing bank accounts has increased greatly in recent years. In 2015, it was the primary method of banking for 9.5 percent of Americans; this has since increased dramatically, reaching 43.5 percent in 2021, becoming the most prevalent primary method, according to the FDIC.

The benefits of mobile banking include:

  • Convenient access: You can access the bank’s mobile app anywhere there’s an internet connection.
  • Mobile wallets: Bank accounts can be connected to a digital wallet, such as Apple Pay, to make contactless payments in stores or online.
  • Fraud alerts: Mobile bank apps frequently come with a variety of alerts that users may set up to notify them of any suspicious activity or large transactions.
  • Send money between peers: You can connect your bank account to a peer-to-peer (P2P) payment app to send money to friends and family with a few taps. Many banks even have Zelle, a popular P2P app, built into their mobile banking app.
  • Pay bills: Some mobile banking apps allow you to set up mobile bill payments. You just need to add the biller’s information to make a payment to them.
  • Deposit checks easily: You can deposit checks through a mobile app by taking pictures of the front and back of the check. The images are processed by the bank to make sure the check is valid.

How to open a digital bank account

Opening a bank account online is not too different from opening an account at a branch. The required documentation is generally the same, and it doesn’t take long to do.

First, make sure to find an account that fits your needs. One way that digital bank accounts differ from traditional accounts is that they may offer much higher yields and lower fees. The market for savings accounts is much more competitive with digital banks.

Since the account is digital, you won’t need to worry about looking for local branches. However, you may want to consider access to ATM networks, so that you can easily take out cash.

When submitting an application for an account, make sure to have the following information prepared:

  • Social Security number
  • Driver’s license or government-issued ID
  • A bill with your name and address on it
  • Other bank account and routing numbers to fund the new account

Once your application is approved, you’ll need to fund the new account. A common way to do this is by linking an external account and transferring funds into the new account. You may also be able to fund the account by making a mobile check deposit or by sending money through a P2P app, such as Zelle or PayPal.

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