Digital banking trends in 2023
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Digital banking encompasses many different banking tools and trends, but one thing is certain: Digital banking is on the rise. Most Americans have used digital banking services in the past year, and more banks are offering new, innovative digital tools, from mobile apps to automated savings features.
The rise of digital banking has coincided with a decline in the presence of traditional banks, which have faced a loss of 9 percent of all branches across the country over the past several years. While traditional banks offer access to branches, digital banks — those offering only online and mobile banking services — often provide attractive yields and low (if any) bank fees.
Here’s everything you need to know about digital banking trends in 2023 and how they compare to traditional banking statistics.
Key statistics on digital banking
- About 60 percent of consumers say they are very or somewhat interested in using a digital bank in the next year.
- The generation most interested in digital banking is millennials (79.3 percent), while baby boomers are the least interested (33.8 percent).
- Of those who are interested in digital banking, 43 percent say their primary motivator is to have improved transfers; 33 percent want lower costs, the second-most cited motivator.
- Branches aren’t obsolete yet — of those who prefer online or mobile banking, 79.9 percent still visited a branch in 2019.
- About 27 percent of Americans use an online-only bank.
- Of those at online-only banks, 88 percent reported they are satisfied with the bank’s services.
- Meanwhile, only 66 percent of consumers using traditional banks report being satisfied with them.
- When it comes to banking satisfaction, 37 percent of consumers say no or low monthly fees is the most important feature they look for in a checking account — making it the top-cited feature.
- Around 5 percent of Americans are unbanked, meaning they have no bank accounts.
Sources: PYMNTS, FDIC, JD Power, Galileo, Bankrate, U.S. Federal Reserve
Traditional banking vs. digital banking
Traditional banks are those that have a physical presence, and many of the largest U.S. banks, including JPMorgan Chase and Bank of America, are considered traditional banks. Online banks do not have branches, and they may offer services both via desktop website and mobile apps.
The fintech Galileo found that 65 percent of consumers use traditional banks for their primary bank accounts, while JD Power reports that 27 percent primarily use online banks. However, of the 65 percent using traditional banks primarily, 77 percent said that they keep some of their funds elsewhere.
Here’s a look at the differences between traditional and online banks and the advantages of each.
| Traditional banking | Digital banking | |
|---|---|---|
| Services | Primarily branch banking, though some may also offer online accounts | Primarily online and mobile banking |
| Common savings account interest rates | 0.01% – 0.02% APY | 3.00% – 4.40% APY |
| Share of consumers’ primary accounts | 65%* | 27% |
| Advantage(s) |
|
|
| Disadvantage(s) |
|
|
* The remaining share of consumers who have their primary account at neither a traditional nor digital bank may primarily bank with a credit union or be unbanked.
Traditional banking trends
Traditional banks — those that have a physical presence — are still the predominant financial institution where people keep their primary bank accounts. However, their reach is declining.
Between 2017 and 2021, 9 percent of all branch locations closed down, a loss of around 7,500 branches, according to the nonprofit National Community Reinvestment Coalition (NCRC). A third of those closures were in low- to moderate-income or historically marginalized neighborhoods. Many of these closures were propelled by the COVID-19 pandemic, during which the rate of branch closures doubled.
The advantages of online banking (lower fees, ease of access) have recently affected the way that many traditional banks do business. One significant change in traditional banking over the past few years has been the elimination or reduction of overdraft fees. Citibank, PNC Bank and U.S. Bank are several of the banks that have eliminated or decreased their overdraft fees.
Most large, traditional banks also now offer comprehensive mobile apps, where consumers can complete basic banking transactions such as transferring funds between accounts, checking account balances and making mobile check deposits. Some of these apps even come with advanced tools like automatic savings features.
Several traditional banks also offer account opening bonuses to incentivize consumers to open an account with them.
One feature common to traditional banks is the offering of in-person services with a bank teller. Data shows that older generations are much more likely to prefer speaking to a bank teller as their primary method of account access than younger people. Here’s how it differs by age, according to 2021 FDIC data.
| Age group | Percent who primarily use in-person banking services |
|---|---|
| 15-24 | 4.1% |
| 25-34 | 4.8% |
| 35-44 | 6.3% |
| 45-54 | 9.9% |
| 55-64 | 16.5% |
| 65+ | 30.5% |
Key statistics
- At the time of this writing, there were 81,205 FDIC-insured bank branches across the U.S.
- The bank with the most branches is Chase Bank, which had 4,791 branches in the U.S. and 33 foreign branches at the end of 2022.
- While 65 percent of consumers use a traditional bank for their primary bank account, 61 percent say they are somewhat or highly likely to switch to an online-only bank.
- Between 2019 and 2021, consumers’ use of a bank teller to access accounts declined from 21 percent to 14.9 percent.
- About a third (31 percent) of banked households primarily used physical channels, such as a bank teller or ATM, to access their accounts in 2021.
- Before March 2020, the rate of branch closures was 99 closures each month on average. This more than doubled with the onset of the COVID-19 pandemic to 201 closures per month.
- About one-third of the branch closures that occurred between 2017 and 2021 were in low- to moderate-income neighborhoods or neighborhoods made up of predominantly racial minority residents.
Sources: Galileo, FDIC, NCRC
Digital banking trends
Digital or online banks are those with primarily web or mobile services. While they don’t have branches, they may be part of large ATM networks, where consumers can still access cash. Online banks, such as Ally Bank and Discover Bank, have been a quickly growing market, with the digital banking market estimated to be $4.3 billion in 2021.
Without the cost of establishing and operating physical branches, online banks can redirect those funds elsewhere, such as yields offered on savings products or ATM fee reimbursements. Most of the top savings account rates are offered by online banks.
Digital banking is becoming more popular with consumers. Use of mobile banking as the primary method of account access, for example, increased from 15.1 percent of consumers in 2017 to 43.5 percent in 2021.
Another trend in digital banking is the emergence of neobanks, sometimes referred to as challenger banks. Neobanks are fintech companies that offer a variety of unique banking services, from regular checking accounts to advanced budgeting tools. Most neobanks are not chartered, but they may partner with FDIC-insured banks to ensure that deposits stored are federally protected. Some popular neobanks include Chime, Varo and Current.
Digital banking by age
Digital banking is more popular among younger generations, with almost three-quarters of 15- to 24-year-olds reporting mobile banking as their primary way of banking in a 2021 study by the FDIC. Meanwhile, only 15.3 percent of those 65 or older reported using mobile banking primarily.
Here’s how use of digital banking channels (categorized as online and mobile banking) as consumers’ primary method of banking differs across age groups:
| Age group | Percent who primarily use online banking | Percent who primarily use mobile banking |
|---|---|---|
| 15-24 | 6.3% | 74.1% |
| 25-34 | 12.9% | 69.4% |
| 35-44 | 18.4% | 60.5% |
| 45-54 | 22.8% | 49.1% |
| 55-64 | 27.3% | 33.2% |
| 65+ | 28.2% | 15.3% |
Digital banking by race/ethnicity
According to the FDIC, households made up of two or more races are most likely to use mobile banking as their primary method of accessing bank accounts, and white households are most likely to use online banking primarily.
Over half (52.3 percent) of multiracial households reported mobile banking as their primary method, while 45.4 percent of Black households and 41.1 percent of white households reported the same. Meanwhile, 25.8 percent of white households primarily bank online, compared with 25.7 percent of Asian households and 12.1 percent of Black households.
| Race/ethnicity | Percent who primarily use online banking | Percent who primarily use mobile banking |
|---|---|---|
| Two or more races | 20.6% | 52.3% |
| Hispanic | 11.6% | 49.6% |
| Asian | 25.7% | 48.6% |
| Black | 12.1% | 45.4% |
| White | 25.8% | 41.1% |
| Native American or Alaska Native | 13.3% | 50.6% |
Source: FDIC
Key statistics
- As of 2021, mobile banking was the primary choice of account access for 43.5 percent of U.S. consumers, making it the most prevalent banking method.
- The majority of consumers (61 percent) use digital banking services at least once a week.
- About one-quarter of consumers say they would prefer to open a bank account online but are unable to do so at their current bank.
- Over half (57 percent) of millennials and 64 percent of Gen Z have a financial account with a nontraditional institution, such as a neobank or other fintech.
- The age group most likely to use a digital-only bank is 35- to 44-year-olds, with 29 percent of those in this age range having digital-only accounts as their primary accounts.
Sources: FDIC, PwC and Galileo
Online banking
Online banking makes it easy for customers to open and check up on their bank accounts from any location where they have internet access. In addition to digital-only banks, many traditional banks offer online accounts too, such as the 360 Checking account from Capital One.
The COVID-19 pandemic had a significant effect on online bank usage. FICO, a data analytics company, reported in 2021 that 71 percent of U.S. consumers were willing to open an account online.
According to Galileo, 96 percent of consumers report security of accounts and funds as a top priority when opening a bank account. Online banks are just as safe as traditional banks, as long as they’re insured by the FDIC, which covers up to $250,000 per depositor, per account type. Bank websites are encrypted to prevent cybercrimes, and they typically require multi-factor authentication to ensure that no one hacks into your accounts.
Some online banks focus on a particular cause or consumer group. Limelight Bank, for example, invests the deposits from its certificates of deposit (CDs) into solar panel initiatives. Valley Bank, a regional bank with online services, has accounts specifically designed for those working in the cannabis industry, including cultivators and wholesalers of cannabis.
Here are some of Bankrate’s picks for the best online banks:
| Bank name | Best for | Why we like it |
|---|---|---|
| Ally Bank | All savers |
|
| TIAA Bank | Interest-bearing checking account |
|
| Quontic | ATM accessibility |
|
| LendingClub | Money management tools |
|
| Discover Bank | Cash back rewards |
|
Online banking by generation
Though many might be quick to assume that the younger generations are more likely to use online banking, the highest usage of digital-only banks is with 35- to 44-year-olds. Of this age group, 29 percent have their primary account at a digital-only bank, while 26 percent of 25- to 34-year-olds do and 24 percent of 18- to 24-year-olds do, according to Galileo.
| Age range | % with online-only bank account as primary account |
|---|---|
| 18-24 | 24% |
| 25-34 | 26% |
| 35-44 | 29% |
| 45-54 | 18% |
| 55-64 | 8% |
Source: Galileo
Mobile banking
Many digital banks offer mobile apps where customers can complete basic banking activities, such as checking their balances and transferring funds between their own accounts or to peers.
Mobile banking as a primary method of accessing bank accounts has increased greatly in recent years. In 2015, it was the primary method of banking for 9.5 percent of Americans; this has since increased dramatically, reaching 43.5 percent in 2021, becoming the most prevalent primary method, according to the FDIC.
The benefits of mobile banking include:
- Convenient access: You can access the bank’s mobile app anywhere there’s an internet connection.
- Mobile wallets: Bank accounts can be connected to a digital wallet, such as Apple Pay, to make contactless payments in stores or online.
- Fraud alerts: Mobile bank apps frequently come with a variety of alerts that users may set up to notify them of any suspicious activity or large transactions.
- Send money between peers: You can connect your bank account to a peer-to-peer (P2P) payment app to send money to friends and family with a few taps. Many banks even have Zelle, a popular P2P app, built into their mobile banking app.
- Pay bills: Some mobile banking apps allow you to set up mobile bill payments. You just need to add the biller’s information to make a payment to them.
- Deposit checks easily: You can deposit checks through a mobile app by taking pictures of the front and back of the check. The images are processed by the bank to make sure the check is valid.
Here are some of Bankrate’s picks for the best mobile banking apps:
| Financial institution | Best for | Why we like the app |
|---|---|---|
| Chase Bank | Automated savings features |
|
| Bank of America | Virtual assistance |
|
| Huntington Bank | Predictive money tools |
|
| Capital One | Account alerts |
|
| Chime | Cutting-edge technology |
|
Key statistics
- The share of Americans who primarily use mobile banking apps to access their accounts increased by nearly 10 percentage points from 2019 to 2021.
- Mobile banking was the primary method of account access for 43.5 percent of Americans in 2021, compared with 14.9 percent who used bank tellers as their primary method.
- Nearly three-quarters of households whose reference person was between 15 and 24 years old used mobile banking as their primary method of account access in 2021.
- A vast majority (87 percent) of Chase survey respondents use their mobile banking app at least once a month.
- Mobile banking features that have had the most growth in usage in the past year among Chase survey respondents are mobile card replacement requests (5 percent increase) and P2P payment services (4 percent increase).
- As of 2022, 71 percent of consumers had used a mobile wallet to make a payment within the last year.
Sources: FDIC, Chase and Marqeta
How to open a digital bank account
Opening a bank account online is not too different from opening an account at a branch. The required documentation is generally the same, and it doesn’t take long to do.
First, make sure to find an account that fits your needs. One way that digital bank accounts differ from traditional accounts is that they may offer much higher yields and lower fees. The market for savings accounts is much more competitive with digital banks.
Since the account is digital, you won’t need to worry about looking for local branches. However, you may want to consider access to ATM networks, so that you can easily take out cash.
When submitting an application for an account, make sure to have the following information prepared:
- Social Security number
- Driver’s license or government-issued ID
- A bill with your name and address on it
- Other bank account and routing numbers to fund the new account
Once your application is approved, you’ll need to fund the new account. A common way to do this is by linking an external account and transferring funds into the new account. You may also be able to fund the account by making a mobile check deposit or by sending money through a P2P app, such as Zelle or PayPal.
Frequently asked questions
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Digital banking is a trend in the banking sector where consumers primarily engage in banking activities online or on a mobile app.
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While many banks and fintechs offer banking services through digital channels, there are some banks that are exclusively digital, meaning they have no branches. Brick-and-mortar banks such as Bank of America and Capital One offer digital banking services, but they are not digital-only.
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Mobile banking is a service provided by many banks that allows customers to access their bank accounts through a mobile device. Banks frequently offer mobile banking apps that customers can download to their smartphones, and these can be used to check account balances, deposit checks and pay bills.
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Online banks are generally safe. As long as the bank is insured by the FDIC, up to $250,000 of deposits per depositor, per account type are protected if the bank fails. Online banks’ websites also come with enhanced safety measures against cybercrime, including encryption and two-factor authentication.
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A neobank, sometimes called a challenger bank, is a type of digital-only bank or fintech company — often a startup — that focuses on technological advancement and unique offerings. Neobanks may not be chartered, but they often partner with traditional, FDIC-insured banks to store deposits and ensure federal coverage.
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