Erica might just be Bank of America’s most valuable employee. But unlike the more than 200,000 staffers who work for the financial giant, she is a virtual financial assistant and not made of flesh and blood. Her meteoric rise—19.5 million customers used Erica in the first quarter of this year, up 60% from the year-earlier period—illustrates the new digital directions of banking stalwarts like Bank of America, Chase and Citi as physical branches shutter or lose relevancy and customers of all ages move online in droves.

“It used to be only certain groups would tolerate mobile banking,” says Christian Beaudoin, managing director research at real estate company Jones Lang LaSalle. “Now all age groups of society are getting used to the idea of remote banking and electronic transactions.”

Long before the pandemic, retail bank branches were already on the decline as consolidation and new methods of banking compelled brands to prune their real estate holdings. Between 2017 and 2020, the U.S. lost 4,500 bank locations, a 5% drop that was subsequently accelerated by COVID-19 in areas like New York, which hit its largest closure rate in two decades late last year. Last year, the number of branches fell nearly 2% from 2019 to 85,050—compared with 98,000 branches a decade ago, according to JLL, which has been running an annual report examining the sector since 2016.

Digital banking has been on the rise for years, but the pandemic supercharged the trend. Mobile banking adoption grew 66% last year, amid temporary and permanent branch closures, JLL found. Bank of America introduced Erica three years ago, but it did not gain serious momentum until lockdowns forced consumers to bank online. Bank of America recorded 105.6 million interactions with Erica in the first quarter of 2021, compared with 27.8 million in the year-earlier period and 16.5 in the first quarter of 2019. 

“With everything shut down, people realized just how capable the digital banking portal could be,” says Michael Perito, an analyst at Keefe, Bruyette & Woods. While physical branches still serve a purpose—as a marketing tool or to provide a place for high-end services—even those factors are fading in relevance. 

Perito notes that during the pandemic, consumers discovered that tasks such as account openings, traditionally done in person, could also be done digitally—opening the door to new marketing efforts from banks. “You started to see not only a huge acceleration in foot traffic reduction,” Perito says, “But banks saw the other side of the coin—their digital adoption engagement was rising and that gave more confidence that they could use the digital channel as an account opening tool when historically they’d been more reliant on bank branches to do that.”

New ways to connect

Banks want to make sure that the increased engagement they saw during lockdowns continues even as vaccinated consumers begin to step outside again. To keep customers attracted to the online platforms, some banks are using text messaging and renewing efforts on social channels. Others have expanded their virtual capabilities to include digital meetings that formerly had been done in branches in person. 

Of course, physical locations are still needed. Many consumers—in particular lower-income customers—still use brick-and-mortar banks, but such channels should work hand-in-hand with digital initiatives, experts say. A recent Ad Age-Harris Poll found that 40% of Americans in households with income below $50,000 do not conduct any personal banking digitally, compared with 9% of households making $50,000 to $74,999 and 12% of households making $75,000 or more.

“Banks have really adapted well over the last year to what people call omnichannel customer service,” says Beaudoin. “A physical presence, an online presence, a mobile presence—curating and managing all three is not an option, it’s a necessity that’s how it will be moving forward.”

Competing with the upstarts

Traditional banks must adapt to compete with digitally native financial institutions—such as Ally, PayPal and Square—which are well-practiced at serving customers without a physical presence and are increasingly recruiting younger generations like millennials and Gen Z customers. While older entrepreneurs might prefer to do their business banking in-person, younger generations—including people who inherit a family business—are more inclined to bank digitally for both their personal and business financial needs. The Ad Age-Harris Poll found that Gen Zers, on average, do about 64% of their banking online, while millennials do about 69%, on average. 

Older banks "have to be more proactive than reactionary" as they deal with these so-called fintech brands, says Perito. Such startups include  Chime and SoFi. "The banks, the smart ones, are mindful of what fintechs are doing because it could shape consumer expectations in the future.”

Even the digitally native brands are bolstering their technology. 

Ally has never relied on a physical space since its founding 12 years ago. Yet during the pandemic, the brand sought new ways to connect with consumers. During the early stages of COVID-19 when many were under lockdown, Ally created content it pushed out through email around topical issues like cybersecurity and, later, vaccination safety. The bank also created social quizzes to maintain what Chief Marketing and Public Relations Officer Andrea Brimmer calls a “human connection.”

“Particularly during the pandemic and last year we used data to identify things on our customers’ minds and created content around that,” she says. It also turned on features like SMS and text messaging during the pandemic to maintain customer connections when other banks were closed.

The moves paid off: In recent months, Ally has seen a higher percentage of older demographics opening accounts with its brand, Brimmer says, noting that this age group had never been a deliberate target because Ally typically marketed to affluent millennials.

“We were on people’s radar and we had the tools that made it easy,” she says, noting that Ally’s has achieved 48 consecutive quarters of customer growth.

QR codes and texting

Like Bank of America, Chase is also upping its virtual game to compete with the upstarts. Moves include a new digital assistant that debuted last year and is capable of using text conversations with customers to complete tasks such as replacing a card or checking a balance, according to Stephen Baron, Chase's head of consumer branch banking.

He notes that although the banking giant has 4,800 branches in the U.S., and is planning to open 150 more this year, the total number of locations has declined in recent years because the brand is able to serve customers with digital offerings. As of the first quarter of this year, Chase had more than 56 million digitally active customers, up 5% from the year-earlier period, and 42 million mobile active customers, up 9% from last year.

“You’ll see us continue to innovate for our customers, whether it’s in the branch, through digital and mobile, or new customer channels,” Baron says, noting the importance of offering customers flexibility and choice in how and where they bank.

Citi “supercharged” its digital banking during the pandemic, according to Mary Hines, chief marketing officer of U.S. Consumer Bank. The brand uses QR codes in branches so customers can find information more easily amid distancing restrictions. Citi also has been expanding its how-to videos for customers and helping them set up virtual meetings for their banking needs. A video about mobile check deposits attracted 20,000 views in 24 hours, proving its worth, according to Hines. The bank saw a five-fold increase in customer appointment requests for virtual meetings between January and April of this year, she says.

“There is a big educational effort broadly across most banks as they try to do the math and realize they have to get their customers engaged in their digital offerings to keep retention high,” says Perito.