Inside Financial Services

New Report: Key Trends in Retail Banking

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Cornerstone Advisors research director Ron Shevlin just published a very worthwhile report on some important trends in retail banking. The biggest takeaways for me:

Digital banks are adding new checking accounts at a rapid pace. The pandemic has given a jolt to the growth at digital banks. Cornerstone says that 6% of U.S. adults with a checking account consider a digital bank as their primary bank, up 67% from January, 2020. Chime is the leader, with 4.3 million customers who consider it their primary bank. That would rank Chime tenth in primary-bank relationships among all banks.

The current demographics of the customer base of the digital banks is suboptimal. About half of megabank customers have an average monthly balance over $1,000, while just 20% of digital bank customers run a balance that high. In addition, the unemployment rate of digital-bank customers, 20%, is twice as high as megabanks’ customers. Also, a higher percentage of checking accounts at digital banks are considered by customers as “their second account.”  Finally, the average education level of digital-bank customers is not as high as that of the megabanks’ customers; just 25% of digital-bank customers have a bachelors degree or higher, about half the level of the megabanks’ customers.

 Digital banks are opening a disproportionate share of new accounts, at the expense of regional banks, community banks, and credit unions. These new accounts are disproportionately opened by younger adults. This trend of younger adults gravitating to megabanks and digital banks has been going on for years.

The average age of primary-checking-account customers at regional and community banks is meaningfully older than it is for mega and digital banks. This has important long-term implications. The average checking account balance rises as the average customer ages, so it means the primary checking account share at regional and community banks and credit unions is falling faster than is overall deposit share, but obviously there will come a point of reckoning down the road.

In all, it’s a great report, with important long term implications, the most important of which is that, collectively, regional and community banks and credit unions need to figure out a way to attract more primary-checking-account relationships among younger customers.