Forty years ago, digital banking got its start in America when a major financial institution first offered remote banking services to a select few. Today, CivicScience data show 85% of U.S. adults are banking online and 72% are banking from a mobile device for at least some portion of their retail banking (yearly averages).

The fintech industry has grown exponentially since the birth of the internet, and has recently experienced serious disruption by “challenger banks” focused on digital experiences and alternative ways to manage personal finances. Some of these banks operate exclusively or primarily online, such as SoFi and CapitalOne. How many people are turning to online banks today? And what is drawing – or preventing – further adoption?

As of this writing, 6% of U.S. adults with bank accounts say their primary bank is online. Most Americans with bank accounts are utilizing national banks which have online access and services, but don’t operate solely on the internet. 

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When asked about what they look for in any bank, whether online or traditional, most consumers selected customer service and friendliness (54%) before benefits like interest rates and ATM network. People in the market for a bank also consider convenience (51%) and fewer or no fees (51%) when selecting an institution.

Gen Z Is Driving the Online-Only Banking Industry

Among the population who do not currently hold an online-only bank account, 23% express some interest in using one as their primary bank for checking and savings. Age has a significant impact on banking habits and preferences. First, older generations prioritize customer service and convenience, while in comparison, Gen Z is more likely to look at interest rates, ATM network, and fee schedules. Second, Gen Z is twice as likely as the Gen Pop to currently use an online-only bank for their primary checking and savings, while also being the most likely intenders.

A large percentage of Gen Z adults also say they have used online-only financial services such as E*Trade, Ally, and Rocket Mortgage. Older generations are significantly less involved and interested in internet-based banks.

The Issue of Trust

Despite the massive number of Americans interacting with their banks online, more than half of those familiar with internet-based banks don’t trust them. While “trust” can be an elusive commodity for businesses and brands, polling suggests confidence in traditional banking establishments isn’t too great either. Most Americans say they trust traditional banks “somewhat” (49%) or “not very much / not at all” (36%).

Generally speaking, Gen Z is more trusting of online-only banks and traditional banking institutions. While online-only banks have a small awareness issue, being unfamiliar with the business model isn’t the primary deterrent to signing up. In addition, people who do 50% or more of their banking online only trust online banks marginally more than those who don’t manage finances online.

More than half of bank users say they don’t have an account with an online-only bank because they are satisfied with their current bank. This means that online-only banks have yet to really convince the Gen Pop to make a change. When considering that most Americans look for customer service in a bank, online-only institutions might feel unreliable without physical locations.

Given the general awareness and trust issues, it’s unsurprising that the general likelihood to set up a bank account with an online-only bank is at just 25% of the Gen Pop.

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Characteristics of consumers inclined to use online-only banks:

  • People who have difficulty controlling their spending are more likely to consider enrolling in an online-only bank. They are also more likely to be unfamiliar with internet banking, which could present an opportunity for increased marketing toward this demographic.
  • Consumers with debt are almost twice as likely as those without debt to consider an online-only bank.
  • Poor money managers rate their trust in online-only banks significantly higher than those who say they manage their money well. 

Trust in online-only banks is difficult to pin down except among young people and those with poor money management skills (which could possibly be overlapping demographics). Challenger banks are rewriting the financial services script for consumers, but people still need time to feel like a non-traditional bank can provide what they have and more through traditional banks.

To learn how you can stay ahead of the latest consumer trends in the fintech industry with the CivicScience InsightStore, get in touch.