Is the Pandemic Accelerating the Move to Branchless Banking?

How the quarantine represents a moment of reckoning for app-based banking.

Photo by Clay Banks on Unsplash

Dear readers, 

Firstly, I hope that you’re doing as well as you can be in this eventful time. Secondly, I apologise for sending another pandemic-related email into your inbox. I am fully aware that every email you receive these days is to do with the dreaded C-word (no, not that one). Lastly, I promise more updates from now on.

I understand that this is a really difficult time for many people and that health and safety is a priority at the moment for you and your loved ones. Perhaps, you are not thinking currently about how your money is handled but more on how you need to use it. 

However, knowing how the crisis might result in radical changes of handling your money may allow you to adjust more quickly. It may also help you to find out more about digital financial solutions that might help you during this time of need. If that sounds like what you might need, this newsletter is here to do that for you.


The only valid and safe method of banking left is digital banking

As the world shuts down and we brace for our new normal, one reality still exists. We still need our money. And the way we need to access and use it now relies on digital banking more than ever. 

Much has been written on how the global pandemic will accelerate global trends. Arguably, one of the ones that can be seen most prominently is the rapid rate of digital banking adoption. With social distancing obliterating our reliance on branch visits, our phones and laptops are filling the void of branch visits for loans and account openings. 

Economies such as Singapore and Canada have already seen a rapid uptick in digital banking adoption. In Singapore’s case, they have even seen a rapid adoption amongst seniors. Canada is also seeing mortgage renewals being handled online. The pandemic might just end up tipping the scale, letting people become more comfortable with large transactions and loans being handled entirely in cyberspace. 

Cash is no longer king 

Another way in which the virus may reduce the need for physical branches is how cash and coins can be viewed as carriers of the virus. Even in societies where cash has long been king such as Germany, many have started to swap the paper for plastic. In the UK, the limits for contactless payments have increased to £45

Such a radical change to the payment landscape causes us to question the necessity of the ATM (or the cash point if you’re British), a long-held brick and mortar feature of bank branches. This is especially paramount in this current age where the ATM acts as just another surface that the virus can spread onto. If we no longer need to visit our banks to take out money, open accounts or set up mortgage payments, what is the point of a physical bank? 

In particular, the switch to digital banking and its importance at the moment is arguably the difference between being able to put food on the table or not in a time of mass unemployment. In the US increased use of app-based banking services to access coronavirus stimulus checks resulted in outage issues. Moreover, in the UK TSB customers were unable to access their mobile app services due to increased traffic

Who will emerge the winner; the plucky challenger or the legacy player? 

Despite this, the question as to whether this will truly undermine legacy banks and pave the way for digital-only challengers is unclear. Research has revealed that during lockdown 6 million downloaded their bank’s app for the first time. This arguably benefits the legacy banks whom most people have their accounts with such as HSBC, Nationwide and Natwest who were the biggest three net gainers of new current account customers between 1 April and 30 June last year. 

Whilst this might make customers more open to app-only banking, it may also force larger banks to rapidly adopt digital solutions with the biggest banks reportedly more prepared to serve the digital customer. Arguably, depending on how effectively this is implemented, this may result in the novelty and user-friendliness of app-only banks being undermined. The drop in-app bank signups during the lockdown could suggest that this is the case. 

However, the picture of digital finance is arguably not as crystal clear as it seems. With their technical know-how of app-based financial solutions, challenger banks may never be truly undermined. This is most exemplified most in how American digital bank Chime has been quick to respond to the situation by piloting instant stimulus checks earlier this month. 

Innovative is the key to survival more than ever 

If challenger banks with their lack of bureaucracy can continue to innovate in these ways ahead of their competitors, they can continue to thrive as they were doing in the pre-COVID-19 era. In the UK, Starling Bank have responded with similar innovative ways to the crisis by offering a spare connected card to give to a trusted user for people who rely on others to shop whilst self-isolating. They’ve also introduced overdraft interest holidays as part of their Coronavirus Support Scheme to their users. 

However, others such as UK neobank Revolut have come off tone-deaf with their decision to fast track the launch of crypto and gold trading. Whilst this is a welcomed addition, it arguably does not tap into the current key monetary issues that are plaguing our minds during this crisis. Moreover, then have also come under fire for freezing an account that was to be used for a family member’s funeral as a result of the virus. 

In amongst this, Monzo has applied for a US banking license, suggesting that the pandemic has not halted their long-term ambitions. In a world where the normal is not normal, it’s hard to know how this will pan out. Will we emerge more reliant than ever on legacy banks or will our financial heartstrings be pulled by the convenient charms of app-based banking? 

One thing is for sure is that for the foreseeable future we are in the age of the death of the physical bank branch. Quarantine is keeping us inside and away from the queues at the ATM. And that in itself represents a huge departure from our previous financial existence. Undoubtedly, however, what takes place in the months to come will be a crucial plotline in the story of fintech.

In other digital bank news.

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About Tom Matsuda

Tom Matsuda is just like you. Another millennial who was drawn in by the easy-to-use interface of app-based banking. I enjoyed the instant payment notifications and categorisation of spending into groups such as “Eating Out” or “Bills”.

But a recent issue where I and 499,999 people had their PIN number accessible to unauthorised staff for six months have caused me to question my loyalty. I have now been downgraded from fan to critical consumer. I set up this newsletter to make sense of the world of digital banking from an analytical point of view for me and you if you decide to stay signed up. 

If you’d like to read more of my writing on topics ranging from race to internet addiction and even reality TV, please check out my Medium profile. For those of you who are unimpressed (I don’t blame you), the unsubscribe button should be at the bottom of this email. 

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