Digital Banks Use AI, Personalization And Sophisticated Apps To Appeal To Younger Generations

Digital banks, also known as challenger banks and neobanks, are gaining in popularity. Particularly during coronavirus, when the ability to move freely has been inhibited because of quarantines, consumers have leaned into mobile first and digital solutions. Chime, a digital bank, offered advanced lending of stimulus checks through their overdraft program and saw its highest number of account openings since opening in 2013. Stash, a digital bank investment group hybrid, saw similar growth by providing assistance and information about the CARES Act stimulus checks. 

“This crisis is an opportunity for companies to really show their true colors,” said Chris Britt, Cofounder and CEO of Chime. “The actions that companies take at this time will really define their position and define their brands.” These smart, helpful actions taken by select digital banks have positioned them well for business after this crisis, at a time when digital banks are already seeing growth. 

Digital Banks Must Differentiate From Traditional Banks

People like their brick-and-mortar banks. According to Business Insider, “When asked why they haven’t yet opened an online-only bank account, 73% of Americans across all generations said that it was because they were happy with their current bank.” But only Baby Boomers cited the need for in-person contact as an notable reason for not switching to a digital bank. In order to entice consumers away from brick-and-mortar banks, digital banks need to differentiate their services and appeal to encourage trial. 

App Usage Offers Many Benefits For Digital Bank Consumers

With seven out of ten Americans using mobile apps to manage their banking already, the sophistication of banking apps is an easy sell for consumers interested in switching banks. Digital bank apps are often superior to traditional bank apps, allowing for complete account set up on the app. Many digital bank apps also offer in-app chat with banking customer service, mobile payment options and transfers between accounts. 

Digital Banks Can Offer More Personalized Banking With AI

Seamless, one-tap operations are the direction every business is heading as consumers increasingly demand interactions that require minimal effort with maximum return, whether that’s shopping and shipping or banking. Many digital banks are adopting advanced machine learning and AI to offer personalized services that seamlessly integrate chat bots to offer directions on how to do simple account management with high-level guidance on investment management. Australian neobank Douugh comes with its own AI assistant, Sophie, who even helps customers manage their spending.

Offering personalized services through AI intersects with the consumer-first approach of many digital banks. Digital banks, because of the limited overhead, typically offer lower or no fees and competitive interest rates that allow them to put their customers’ needs first. Frequent communications and well-explained fee schedules and banking policies are built into the DNA of digital banks. Packaged and promoted effectively, digital banks can use these differentiators to draw more bankers away from traditional banks now and in the years ahead.

Digital Banks Appeal To Younger Generations 

The growing infrastructure of the fintech industry makes it easier to launch digital banks than in prior decades. In a 2019 article about the rise of neobanks, Forbes reported “While it can take years and millions in legal and other costs to launch a real bank, new plug-and-play applications enable a startup to hook up to products supplied by traditional banks and launch with as little as $500,000 in capital.” 

The start-up culture and streamlined services of digital banks, including memberships, peer-to-peer payments and simplified lending, could give digital banks the jump on younger generations. Additionally, the fresh, unencumbered vibe of digital banks appeals to (relatively) younger consumers. In fact, Finder, a company that compares fintech products, found that 26.3 million Gen Xers and 20.6 million Millennials have neobank accounts. 

For digital banks, staying agile in the midst of this changing industry and capitalizing on environmental and preference shifts could be integral to continued growth and awareness.

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