KEY POINTS: 

  • US millennials are banks' most important demographic. Millennials — those aged 18-34 — represent the largest share of both the US and employed populations. They are also the first digital-native generation. BI Intelligence surveyed 1,500 millennials on their banking habits and preferences, as these largely indicate the fate of the bank branch. 
  • The bank branch is on the path to obsolescence. It will be some time before the final death rattle, but improving online channels, declining branch visits, and the rising cost per transaction at branches are collectively leading to branch closures. 
  • Digital-only banks and third-party technology providers have an edge. Digital-only banks, like Ally Bank and First Internet Bank, can reach prospective customers in remote locations relatively easily, without having to invest in a branch network. Third-party technology providers, like Apple and Mint, have a similar advantage in that they offer many of the same services as banks but don't have to pay regulatory fees. 
  • Banks that don't act fast are going to sever relationships with customers. Consumers are increasingly opting for digital banking services provided by third-party tech firms. This is disrupting the relationships between banks and their customers, and banks are losing out on branding and cross-selling opportunities. For many banks, this will require further commoditization of their products and services.
  • The ATM will go the way of the phone booth. Relatively low operational costs compared to bank branches, paired with customers' preference for in-network ATMs, makes the ATM an attractive substitute for bank tellers. But as cash and check transactions decline, the ATM will become nonessential, ultimately facing the same fate as the physical branch. 
  • The smartphone will become the dominant banking technology. As the primary computing device, the smartphone has the potential to know much more about banks' customers than human advisors do. The smartphone goes everywhere its user goes, has the ability to collect user data, and is already used for making purchases. Therefore, the banks that will endure will be those that offer banking services optimized for the smartphone. 

Introduction

BII Millennials Labor Force10.22.15BI Intelligence

Digital banking channels make it easier and more convenient for consumers to connect to banks. At the same time, third parties are increasingly providing the services [...]