In decades past, banking clients had more incentive to switch banks than they do now. It was important to find the best bank, with the best amenities, that had branches in all the right locations. This list goes on. But nowadays, technology is making it easier than ever to bank right from the comfort of your own cell phone. In addition to the fact that banks – large and small – are investing in technology to add convenience to their own operations, third-party companies are providing new, convenient services that customers are looking for.
The creation of these new, third-party services has lead to a phenomenon called deposit displacement. This refers to the fact that traditional bank accounts have become temporary holding places for a customer’s paycheck until it can be funneled out and used elsewhere. With the convenience of these applications available to anyone, there is less incentive than ever for clients to leave for the greener pastures of another bank. Here are some of the most common applications involved in the deposit displacement phenomenon.
Health savings accounts have become a widely popular product allowing individuals to divert money from their paychecks for current or future healthcare needs. Between these and traditional savings accounts, banking customers all over the country are redirecting money from their checking accounts to these savings accounts for safe keeping.
So many companies these days allow you to connect your credit card directly to their site and easily purchase items with one single click. A great example of this is Starbucks. If you have the Starbucks app on your phone, you don’t even need to open your wallet at their store. Instead, you simply flash your phone and technology does the rest. Amazon is another example of a merchant app that makes purchasing items quick and easy. These tools and many others eliminate the need for clients to switch banks in order to perform simple tasks.
For some time, banks have allowed their clients to transfer money between accounts at the same bank. All of the calculations and the trading of funds were completed within their closed-loop system. But now, you can send money to anyone you want, regardless of where they bank, and in some instances, regardless of whether they have a bank account at all.
The addition of these products does not threaten the future of banking, but it does alter the relationship that individuals have with their bank and their money. The deposit displacement phenomenon alleviates the need for banking customers to go elsewhere because so much is available to them online. This can work out favorably for small community banks whose customers love their customer-centric approach to banking because now there is less pressure than ever to provide these additional services which are available for free online.
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