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Heather Mosley | SBJ

Tech Forward: Officials say online banking and payment apps are here to stay

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Even before the coronavirus pandemic led to temporary closures of brick-and-mortar bank branches in 2020, financial technology services, such as digital banking and contactless payment apps, already were on the rise, officials say.

Now adoption of some of those options, which include online financial companies Chime and SoFi, along with peer-to-peer and business payment platforms Venmo and Cash App, are becoming widespread and a likely permanent part of the financial landscape, said Missouri Bankers Association President Jackson Hataway.

“We won’t walk backwards from this kind of payment infrastructure,” he said. “If anything, we’ll find ways to advance it and make it faster and more secure.”

While Hataway said the banking industry has historically talked about fintech services appealing more to a younger demographic, the pandemic accelerated their usage and appeal to older generations that may have been hesitant to embrace them.

“It’s very common now for anybody in any demographic to have an Apple device or Google device as their primary phone,” he said. “You look at the top uses for a phone, it might rarely be to make a phone call. It’s usually to do something that is internet or digitally based. That naturally kind of progresses into financial services.”

Hataway said he uses online banking and has the Apple Wallet app on his iPhone, which allows him to access the Apple Pay mobile payment service.

Jeff Jones, finance and risk management department head at Missouri State University, said convenience is the primary driver for fintech users. He uses Venmo, as do his children.

“I’m 48. I’m not old, but I’m no spring chicken,” he said. “I know if I want my kids to reimburse me for any money, they’re not going to write me a check, but they’ll Venmo me something immediately.”

Venmo, which is only available in the U.S., lets users send and receive money digitally, as well as make purchases with authorized merchants. Founded in 2009, the company now is a subsidiary of PayPal Holdings Inc. (Nasdaq: PYPL). There were over 22 billion Venmo payment transactions in fiscal 2022, up 16% from the prior year, according to parent company PayPal’s most recent earnings report.

One of its competitors, Cash App, launched by Block Inc. in 2013, also is experiencing significant growth, according to market research company eMarketer. Cash App users reached over 47 million last year and the number is estimated to grow in 2023 to nearly 53 million. Funds held in Venmo and Cash app accounts are not insured by the Federal Deposit Insurance Corp.

“Electronic payments are here to stay,” Jones said. “Even when you transact with the government now, it’s all electronic payments, it’s all direct deposit. It’s probably just a matter of time that it’s going to be the only way you can get things. The IRS still accepts paper tax returns, but they really, really discourage it. They want things to be submitted electronically; they want to make payments electronically.”

Going digital
Digital services, such as online deposits and mobile apps, are options that all banks – online only or brick-and-mortar financial institutions – need to offer, Hataway said. A 2022 digital banking survey by Ipsos-Forbes Advisor said 78% of Americans would rather bank digitally, via mobile apps or websites.

“Banks need to be present in those places. They need to have solutions available to those people who want to do digital transactions,” he said. “They need to make sure they’re not just watching things pass by. But you certainly feel the pressure from competition pushing everybody to meet a higher bar.”

Jones said fintech products have changed the way traditional financial institutions operate.

“Mobile deposits are something that have only become available in the last few years. Previously, you had to go to a physical location,” he said. “Before mobile deposit, it was ATM deposit. Now you don’t even need to visit an ATM. You can take a picture of your check.”

While Jones doesn’t envision banks not having physical locations in the future, he said, “It matters less and less every day.”

The FDIC reported in the third quarter of 2022 there were 4,157 commercial banks, down from 4,237 in 2021. The total in 2012 was 6,089 banks, a drop of nearly 32% over the past decade.

Online-only banks, such as SoFi, which gained its bank charter last year, are becoming increasingly popular. San Francisco-based SoFi Technologies Inc. (Nasdaq: SOFI) said in its 2022 earnings report that it added nearly 480,000 new members in the fourth quarter, ending the year with 5.2 million – a 51% year-over-year increase. Also, deposits in the fourth quarter grew 46% to reach $7.3 billion at year’s end.

Finding comfort
Still, Jones said brick-and-mortar branches have the appeal of a personal touch and the option for face-to-face interactions that online banks can’t replicate.

“For commercial lending, it’s much more customized. It’s difficult to replicate commercial lending online,” he said. “It’s less transaction and more based on a relationship.”

For those looking to venture into online-only banking, Hataway said shoppers should make sure the financial services company is FDIC-insured.

“If you’re a consumer and you put money in your bank, it’s safe and guaranteed,” he said of the insured banking system. “It will always be available to you, and you’ll have the power of the FDIC backing that up.”

While the comfort level for fintech use has grown amid the pandemic, Hataway said people are likely still hesitant to take the plunge into digital services. That process can start with a conversation with your bank or a financial expert.

“See what your bank can do for you to have those options available. The thing I would caution anyone against is just jumping into something they don’t understand,” he said, citing as an example cryptocurrency and those who invested in FTX – the crypto trading platform that collapsed in November and filed for bankruptcy.

“If we move in without expertise and advice, we put ourselves in significant risk. No one should be in a position where they don’t have someone they can talk to help them better understand the decisions they are making when it comes to their financial well-being.”


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