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The Rise of Branchless Banks and How Traditional Financial Institutions Can Compete

Credit unions and banks are under pressure to react, with digitally native financial institutions gaining a solid foothold in the market. Globally, a new generation of branchless banks has successfully unpacked and rebranded the products traditionally offered by brick and mortar providers. They have grown market share quickly and raised capital with apparent ease, disrupting the landscape with slick, alluring marketing campaigns. 

But there is no need to panic. Faced with this fresh challenge, credit unions and banks can take encouragement from the fact that the task ahead is one that almost every business has to address — digital transformation. Some sectors, such as manufacturing and logistics, are well ahead on the journey, while financial services have been slower to respond. And now is the time to take your foot off the brakes.

The Scale of the Challenge for Credit Unions and Banks

Although FinTech is driving market disruption at a furious pace in the U.S., the rate of change is still modest compared to some global markets. Digitally native challenger banks are already well established in the UK, Australia, Brazil and many other developed or developing nations where there is a large pool of ‘unbanked’ or dissatisfied consumers to convert. 

But branchless services have established a bridgehead in the U.S, and in their quest for rapid growth, nothing is sacred. Disruptor banks and services have reshaped the mortgage lending sector, for example, once the preserve of the big three banks Wells Fargo, Bank of America and Chase. Now brick and mortar banks and credit unions are in the crosshairs, fueled perhaps by the shift towards a cashless economy. A third of Americans already claim they don’t make any payments with cash during any given week. An economy without cash is one in which tellers, face-to-face services and branch visits are less essential. And that was even before the pandemic. 

A key catalyst for change

Intentionally or not, Americans have been inducted en masse into the digital banking ecosystem due to Covid-19. More people are working from home, and ATMs and tellers have been restricted. Not surprisingly, some 35% of consumers have increased their online banking since the start of the pandemic. All these might paint a gloomy outlook for traditional financial institutions. Survival, however, is possible and depends on spotting the opportunities. Here’s how to compete. 

Invest in Security, Software and Strategy

Lack of security remains one of the key concerns in any digital transformation project, but even more so for traditionally risk-averse end-users of brick and mortar services. The bad news is that in 2019, 61% of data breaches involved banks or credit unions. There is work to do, and the priority should be to allocate IT spend to where it delivers value. According to Deloitte, 73% of incumbent bank IT spend goes to maintaining legacy systems. Credit unions and banks must switch to better value cloud and banking-as-a-service models that offer a seamless user experience with built-in security to future-proof their service. 

That also means investing in leadership versed in digital transformation, with the specific skills to implement change. If that means looking outside the traditional avenues, that is what the challenge demands. 

Capitalize on Trust

One commodity that both banks and credit unions have in ample reserves is consumer trust. But it cannot be taken for granted. The new generation of end-users, particularly Millennials, are accustomed to shopping around for a best-fit service or product. To nurture their loyalty, credit unions and banks must deliver the tools, resources and services that meet their needs. And they must position themselves through marketing as a stable presence and a long-term partner in their consumers’ lives. 

Become a One-stop Shop

One of the common themes among disruptor banks and financial institutions has been cherry-picking the most lucrative services and maximizing user experience in that niche. For example, a branchless bank might offer end users a frictionless or cheaper way to transfer money internationally. In response, credit unions must double down on their ‘one-stop-shop proposition, even if it means outsourcing to third-party partners. By allowing the end-user to access a suite of services from a single dashboard or app and integrate digital self-service activity with face-to-face interactions, credit unions can outflank the disruptors. 

Drill Down on Data

The key currency in digital transformation is data, but it has to add value to the end-user. When end users can see a fair value exchange, in terms of greater insight or rewards, they will share their data freely. In fact, according to Accenture, 80% of those surveyed said they would share more data in return for personalized services.

Credit unions and traditional banks can compete by unleashing the potential of predictive and diagnostic analytics to achieve some significant gains:

  • Greater insight into end-user behavior and preferences
  • Tailor personalized services and products based on that insight
  • Offer rewards based on end-user loyalty
  • Create new products for a broader range of touchpoints, such as lifestyle stage, income, location

All branchless banks are doing some of this, but none do all of this. On the other hand, credit unions and local banks are ideally poised to collect and aggregate data from various sources and offer bespoke products with that insight. For example, offer savings and budget tools for young savers. Create financial education packages to prime consumers for ‘next step’ investments, such as insurance, mortgage or pension. 

At Lumin Digital, we specialize in customized digital solutions for financial institutions that power up your digital transformation journey using the latest fintech innovations. It’s a partnership, working closely with your institution to identify the tools and services that will deliver the most value and help you build strong relationships with your members. Our industry-leading cloud-native platform offers a secure, scalable solution with zero downtime. 

Ready to start competing with branchless banks today? 


Forbes – Digital Banking As The New Normal In 2021: What To Expect From Banks

Credit Union Executives Society – Scenarios for Credit Unions 2020: Striving to Stay Relevant in a Rapidly Changing World

Accenture – 2019 Global Financial Services Consumer Study

Deloitte – The DNA of Digital Challenger Banks

McKinsey & Company – Reshaping retail banking for the next normal

PSCU – People Will Determine Credit Unions’ Digital Transformation