CUs & Banks Doubled Digital Transformation Investments in 2022, Report Finds

A new report said credit unions and banks, with an average size of $4.4 billion, more than doubled their investments in digital transformation last year to nearly $425,000 per one billion in assets, up from an average of more than $200,000 per one billion in assets in 2021.

Overall, 69% of checking account holders are now active digital banking users, up from 67% in 2021. The findings were published last week in the “2023 Digital Banking Performance Metrics” research report from the Scottsdale, Ariz.-based Cornerstone Advisors, which was commissioned by Alkami Technology Inc.

In addition, 56% of checking account holders of the 87 surveyed institutions actively accessed mobile banking options in 2022.

“The banks and credit unions in this report with the best overall financial performance consistently outperform their peer financial institutions on a wide range of digital banking metrics,” Cornerstone Chief Research Officer Ron Shevlin said in a prepared statement. “The correlation is strong enough to suggest that institutions with improved digital banking performance are likely to improve overall business performance.”

Some of the report’s key findings show that mobile deposit popularity is surging, with 52% of active digital banking users depositing checks via mobile devices in 2022, up from 37% in 2021. Loan applications that originated via digital channels increased from 36% in 2021 to 47% in 2022.

What’s more, peer-to-peer (P2P) payments saw increased adoption with active P2P payment users as a percentage of digital banking users slightly doubling from 12% in 2021 to 25% in 2022, the report said.

Mobile payments are fragmented with 70% of customers/members using more than one provider, and 49% using three or more, according to the report. Seventy-four percent of Gen Z and millennial consumers are using PayPal, while 49% are using Cash App, 39% use Venmo, 32% Apple Pay and 16% Facebook Pay.

The report also noted some of the challenges that credit unions and banks are encountering as part of their digital transformation initiatives.

Despite the growing focus on mobile channels, the overall percentage of checking account holders who are active mobile banking users increased by only 1% from 2021 to 2022.

“The small uptick in overall mobile banking adoption is a warning sign for mid-size financial institutions,” one of the report’s conclusions stated. “Mobile banking adoption is nearly ubiquitous among Gen Zers and millennials and is approaching 90% among Gen Xers. Even six in 10 baby boomers are mobile banking users. So why do mid-size financial institutions see only half of their checking account holders actively using their mobile banking offerings? As a key technology for engaging customers and members, many banks and credit unions must find new strategies to grow their mobile banking adoption.”

The report noted only half of credit unions that expected to deploy a new digital account opening system last year actually did so. Why is this?

“Too many institutions think a new system will magically drive new account applications and deposit gathering,” according to the report. “The reality is that deploying a new system changes – or at least, should change – a lot of processes throughout the organization related to account opening, onboarding, marketing, risk management and Know Your Customer. Redesigning those processes to improve speed and efficiency is a significant effort.”

The report also stated midsize credit unions and banks need to develop a mobile payments strategy to protect their payments revenue. Consumers use multiple digital payment apps because “they tend to use what’s most convenient at the point of the transaction.”

“Midsize institutions need to craft a mobile payments strategy to respond,” according to the report. “Seeing just 15 of the 87 institutions in the study reporting their mobile payment activity suggests many have a lot of work to do.”

The report is available at Alkami.com.