Digital-only banking is super buzzy and attracting tons of VC funding, but consumers don't think branches are going away any time soon

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According to a report, 70% of consumers feel mobile represents the future of banking.

• Digital banking is hot, with VC cash pouring in and minting unicorn valuations.
• MX, a personal finance startup, surveyed 1,014 random US consumers, and the majority of them predict that the future of banking will include at least some brick-and-mortar locations.
• According to MX's report, 70% of consumers feel mobile represents the future of banking. And today, 84% of them use mobile banking at once a week.
• But only 7% of those surveyed said they'd trust tech companies like Apple and Google most with their financial data. The rest trust big banks like Chase, credit unions, and community banks more.
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Digital banking is hot, with VC cash pouring in and minting unicorn valuations.

By the third quarter of last year, neobank funding totaled $3 billion, surpassing 2018's record $2.3 billion, according to CB Insights.

But consumers may not share the same vision for the future of banking.

MX, a personal finance startup, surveyed 1,014 random US consumers, asking about their comfort managing their financial lives digitally, and what they think the future of banking looks like.

Only 18% of consumers surveyed think digital-only financial institutions with no branches will be the future of banking, according to the report, and only 4% thought FDIC-insured technology companies were where things are headed.

Consumers are chasing rates

The majority of respondents predicted that the future of banking will include at least some physical branches. But that's not to say that branches are top of mind.

When asked what they want most from financial institutions, 2% of consumers chose "the best branches," whereas 39% chose "the best rates."

Digital-only challenger banks, like Chime, N26, and Monzo, offer consumers checking accounts without branches. But since they don't have bank charters like traditional retail banks, they partner with banks like Green Dot and Bancorp that offer FDIC insurance and core banking functionality.

Unburdened by the cost of brick-and-mortar branches, many digital-only players offer high-yield rates unmatched by traditional retail banks.

Goldman's digital-only Marcus offers 1.7% and branchless Ally Financial offers 1.6% - both well above the national average savings rate of 0.09%, according to the FDIC.

Branches are less important, but consumers value mobile experiences

JPMorgan experimented with a digital-only offering with the launch of an app called Finn in 2018. It dropped the project a year later, rolling Finn customers over to the bank's retail arm, Chase.

Finn, which was JPMorgan's attempt to capture the digital-savvy millennial market, didn't offer the same benefits as other digital banks, like high-yield savings accounts.

Chase, which offers online, mobile, and branch banking, has a strong brand among US consumers. JPMorgan Chase is the largest commercial bank in the US according to the Federal Reserve, and it leads the industry in number of digital users.

As of the fourth quarter of 2019, Chase has 37 million mobile customers. Bank of America reported 29 million, and Wells Fargo reported 24.4 million.

Digital-only bank Chime, which offers an app, has 5 million users, according to CNBC.

According to MX's report, 70% of consumers feel mobile represents the future of banking. And today, 84% of them use mobile banking at once a week.

Tech falls behind on consumer trust

Not only are consumers betting that traditional banks are here to stay, they also appear to trust them more.

Only 7% of those surveyed said they'd trust tech companies like Apple and Google most with their financial data. The rest trust big banks like Chase, credit unions, and community banks more.

But if they had to pick a tech company, it appears it would be anyone but Facebook. When asked which they'd trust most to manage financial data, responses were split almost in quarters among Amazon, Apple, Google, and Microsoft, with Facebook getting 1%.

Big tech has made moves in what may appear to be a challenge to retail banks. But without banking licenses, they need partners. So the tech firms are partnering with Wall Street players to offer financial products.

Last year, Google announced it would be launching a checking account in partnership with Citi. Apple launched its credit card with Goldman Sachs, though it debuted with the slogan "Created by Apple, not a bank."

And Facebook's Libra ambitions were stifled by regulators, prompting major supporters to withdraw from the Libra Association a group that included traditional finance players like PayPal, Mastercard, and Visa, but is mostly fellow tech players now.

Read more: Neobanks like Chime are attracting billions in VC cash, but unlike most retail banks they don't do any lending. Here's how they've built a business on referrals and debit card swipes.

Read more: Visa's new investment in a startup backed by Goldman Sachs and a16z shows how financial firms are tackling the thorny issue of third-party data sharing

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