In the battle of the banks, branch-less institutions appear to
be winning. According to an analysis of 2012 banking data, direct
banks -- also known as online banks -- are the only type of bank
that gained market share last year.
Consultancy group TNS recently issued a
that details how national, regional and even community banks have
struggled to maintain market share against online institutions.
Deposits at major direct banks have more than doubled in the past
High savings account rates may be a draw
The analysis looked at deposits for these four major direct
These banks forgo traditional branches and, largely as a result
of their low overhead, currently offer savings account rates and CD
rates that are well above the national averages. Those rates may be
one reason why individuals choosing direct banks tend to have
higher levels of income and assets.
The TNS report found that 36 percent of those using direct banks
have incomes exceeding $100,000 per year. In addition, 39 percent
have more than $100,000 in investable assets. Those figures are
well above the averages for American households with incomes of
more than $100,000 (23 percent) and investable assets of more than
$100,000 (28 percent).
Consumers warm up to online services
While market share for direct banks has doubled, they still have
a relatively small customer base. Only 5 percent of consumers
currently use a direct bank as their primary institution. Instead,
some consumers are using a brick-and-mortar bank for their primary
account while using an online bank for their savings accounts.
However, direct banks may see their popularity increase as they
offer more products and additional ways to access money. For
example, Ally Bank provides customers with access to IRAs and has
no ATM fees for those withdrawing money from their checking
accounts. And while debit cards come standard for virtually all
direct bank checking accounts, Capital One 360 will even send
customers old-fashioned paper checks if they want.
Still, for those used to doing their banking in person, direct
banks represent a radical change. Fittingly, younger consumers seem
most likely to embrace the idea of virtual banking. TNS notes more
than half of direct bank customers are younger than age 44.
Your local Chase, Bank of America or Wells Fargo branch may not
disappear anytime soon, but traditional banks may want to watch the
rise of the direct bank closely. The growth among online banks has
yet to show any signs of slowing.