Recent studies point to online account opening as an essential yet underutilized resource for community banks.
Forty three percent of financial institutions do not offer the service for customers, said Nathaniel Harley, co-founder and CEO of the software company MANTL. According to a 2021 Banking Impact Report from MANTL, nearly six-in-10 consumers and small business owners will not do business with an institution that does not offer OAO, regardless of whether they prefer to open an account in-person or online.
Even though consumers and businesses place more trust in traditional financial institutions than in neobanks, nearly half say they are likely to open an account with a digital-only bank or fintech company in the coming months. “Consumers and SBOs are seeking out neobanks and fintech companies, and the megabanks are investing heavily in technology, because they are creating seamless digital experiences,” he said. “It’s an existential threat that regional and community banks must urgently address.”
These trends come as new deposit accounts per branch continue to decline. According to a recent Cornerstone Advisors report, for every 12 accounts that open, 10 are closed.“This suggests that many deposit types are ‘hot deposits’ that are easily lost to higher rates at other institutions,” the report states.
Over the past three years, the percentage of new deposit accounts opened with digital banks tripled, from 6 percent in 2017 to 18 percent in the second quarter of 2020. During that same period, the percentage of accounts opened at community banks declined from 6 percent to 2 percent. Now, more than 14 million Americans say a digital bank is their primary financial institution. “Given these recent trends, financial institutions should worry whether their customer experience with online account opening matches the experience of the digital banks,” Cornerstone states.
Since partial digital account opening still requires customers to enter a brick-and-mortar building, it has a lower rate of completion due to the friction and time involved, according to Cornerstone. Among institutions offering digital deposit account opening, one-third saw between 26 and 50 percent of applications abandoned; more than one-quarter had more than half of their applications abandoned. “Financial institutions that want to win new customers must figure out how to fully onboard a customer in a physically distanced way,” Cornerstone stated. “For many, this means adopting digital identity verification methods.”
In one example of how a successful OAO can work, MANTL highlighted Sioux Falls, S.D.-based First PREMIER Bank, which used a back-office suite with features like debit card integrations, reducing the need for manual account processing across core applications. The program also enabled bankers to refer customers to open an account through the bank’s website or through mobile banking. The option gives bankers and branches credit if they refer customers to an online channel or have an existing relationship with a customer who expands online.
During the first year of the collaboration, First PREMIER experienced a 30-percent increase in deposit accounts opened digitally. More than 3-in-4 new accounts, including 63 percent of new checking accounts and nearly all savings accounts, were existing consumer opportunities.