New FICO Research Shows An Accelerated Digital-First Mindset: 71% Of US Consumers Willing To Open A Bank Account Digitally, Signaling The Need For More Engaging And Personalized Financial Experiences

Digital literacy does not equate to financial literacy as nearly one third of Gen Z prefer to open bank accounts over phone or by mail, showing a surprising digital divide when compared with those more senior to them

Leading digital decision platform company, FICO,  released research which found that the COVID-19 pandemic accelerated a digital-first mindset in financial services, with 71% of U.S. respondents willing to open an account digitally (via app or website).

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The research shows that the idea of a digitally savvy Gen Z does not always extend to financial services, and younger consumers may not be as financially literate as older consumers. While a majority does prefer digital, there is no definitive preference for opening accounts digitally among young respondents (ages 18-24) as nearly a third (29%) prefer to use slower and friction-filled methods, such as phone call or mail to open a financial account. This trend is not apparent in older age groups (over 65) as only 6% of U.S. respondents in this older age group want to apply by phone call and only 1% want to use the mail. This provides an opportunity for financial institutions to offer services and education programs tailored to bolster younger consumers’ financial confidence.

“Digital literacy does not necessarily equate to financial literacy, and in the U.S., digital natives might not be who financial institutions think they are,” said Darryl Knopp, senior director Portfolio Marketing and former Head of FICO Advisors Digital Practice at FICO. “Many financial institutions focus on encouraging more senior customers to use digital services, and while this is necessary, financial services providers also should not presume that older age groups aren’t ready to use digital services or that younger customers automatically can.”

Younger users may find the banking apps intimidating or unapproachable. Less than half of U.S. respondents (49%) under the age of 25 were comfortable downloading a financial institution’s app to open an account.  There is an untapped opportunity for banks to pay more attention to helping younger customers become more confident with digital financial services. Comparatively, more than half of those over 65 (54%) were comfortable downloading a provider’s app. However, when it came to preferences, collectively across age groups, the older the age group, particularly over 45, the stronger the preference for using a website rather than an app.

Global Growth Economies Embrace Digital with High Smartphone Penetration

The appetite for digital account opening is highest in growth economies, such as Brazil (95%), Thailand (93%), and Vietnam (92%) while developed economies like Australia (76%), Canada (79%), and the U.S. (71%) had lower appetites. This is likely due to the leapfrog effect where those economies have populations who transact largely through their smartphones.

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Preferences, Preferences, Preferences

For digital account openings in the U.S., customer journeys must be intuitive yet flexible as individuals’ preferences and abilities can vary. For example, credit cards (71%), cell phone b****** (64%) and personal financial accounts like checking and deposits (62%) were the top accounts that customers were prepared to open digitally. Conversely, hesitancy was present in opening mortgages (24%), personal l**** (24%), or “buy now, pay later” accounts (23%) digitally. This could be due to familiarity with more established products such as credit cards, and checking and deposits, while there is less trust in newer products like buy now, pay latter accounts.

When taking steps to open a digital account, for most online accounts, customers were prepared to answer up to 10 questions. If more than 10 questions were present, 50% of customers abandon the onboarding process. Digital mortgage applications were the only exception where 18% of U.S. respondents were prepared to answer 20+ questions, anticipating more rigor and security for mortgages.

Customers also have high expectations of being able to complete all related tasks for digital account opening via digital channels with 62% of respondents expecting to prove their identity digitally in particular. If asked to move out of digital channels at any point during the digital account opening process, such as posting documents or visiting branches to complete an application, 10% of respondents give up completely on an application and 15% go to a competitor. Only 21% said they would eventually complete the extra steps on a slower timeline. The friction and disruption results in lost customers—and once they’re gone, they’re often gone for good.

“Digital account opening services are now ‘table stakes’ for financial institutions to attract new customers or build more robust offerings for existing ones. The focus really should be on providing an engaging, educational, and adaptive customer experience,” Nikhil Behl, chief marketing officer at FICO said. “Customers want to master their financial lives and banks can help them do that by anticipating their needs and meeting them where they are with the kind of information and services they’re looking for.”

Not All Friction is Bad

While frustrations like too many questions can mean abandoned digital applications, not all friction is bad. Thoughtfully designed points of friction can be extremely valuable for managing risk and making customers feel safe.

U.S. respondents have high expectations for necessary identity verification. Nearly two-thirds (62%) expect to have to prove their identity when opening an account digitally with more than half (54%) across all age groups confident in their ability to use a cell phone to scan identity verification documents, such as a passport or driving license. Respondents also expected to have to prove where they live (48%), set up biometric identification (42%) and prove how much they earn (37%).

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