The unprecedented convenience and speed of mobile banking have had a profound impact on the way customers conduct their banking. A survey from the American Bankers Association found that more than half of U.S. consumers conduct their banking via mobile apps more often than any other method.
However, despite the enormous popularity of mobile and online banking, consumers haven’t completely abandoned in-person experiences. According to a 2024 EPAM global consumer banking report, 86% of those surveyed said they used a physical branch in the last year, and 45% reported doing so at least monthly. These findings indicate that the future of banking is a combination of the physical and digital, something many experts call “phygital.”
What is Phygital?
Consumers expect to engage when, where and how they want, whether physically or digitally. Small banks and credit unions can gain a significant competitive advantage by marrying these worlds together. Phygital products and experiences remove friction, which, in turn, increases customer satisfaction for greater trust and stickiness. While credit unions or small banks may never have a total wallet share of their customers or members, by optimizing the customer experience, they can certainly become top-of-wallet.
Nevertheless, delivering phygital products and experiences is challenging. It will require credit unions to understand which member needs are met digitally versus physically. As the research above indicates, consumers prefer to handle inquiries and transactions digitally, whereas they tend to favor physical channels for advisory, guidance and problem-solving. To converge these, credit unions must curate better experiences and products that eliminate friction across both worlds.
Making Digital More Physical and Physical More Digital
When members call to receive advice or solve a problem (something most people do at physical branches), they speak with a generic help desk agent who passes them along to another person, then another and so on. Alternatively, credit unions can leverage virtual agents powered by artificial intelligence and generative AI (Gen AI) that automatically route callers directly to relevant experts.
For example, someone calling about their mortgage should get routed directly to mortgage support. Likewise, they should talk with their loan officer if they call about their loan. In other words, digital customer support should be more like those interactions that occur at the physical location, where customers are introduced to necessary parties along with all of their relevant information to help support a prompt resolution. Conversely, there is friction when someone visits a physical location to perform digital tasks (e.g., making a deposit, moving money between accounts, etc.). Smaller banks and credit unions struggle because they have a traditional model with a designated teller line, set rooms for loan officers, a space for personal relationship bankers, etc. Ultimately, the customer or member must move through the building to various physical spaces to accomplish what they can do while simply sitting on their couch at home.
To make physical spaces more seamless, credit unions should bring the same digital tools people use into the real world. Just as Apple stores offer easy access to tablets and laptops, members should have devices or tools to log into their accounts to move money or withdraw funds. If they need approval for something, they should also be able to do that digitally without moving from one location to another within a building.
Digital-First Credit Cards
A prime example of the phygital financial products that will define the future of banking is the use of virtual card numbers tied to digital-first credit cards. Unlike standard digital features like instant access, mobile integration and tokenization, which are now common across most cards, virtual card numbers provide a distinct phygital advantage. They allow customers to generate unique card numbers for specific online transactions. In case fraud occurs or the card needs to be replaced, customers don’t have to update every site where their card is stored; instead, they simply replace the one virtual card number used on that site. For credit unions, phygital credit cards stand out through instant approval and digital provisioning. Since card numbers don’t need to be printed, members can start using their card immediately, even before a physical version arrives, offering a faster, more seamless experience that attracts new members seeking simple access to credit.
With modern consumers looking for the convenience that a digital-first credit card can provide, it behooves credit unions to roll it out as swiftly as possible. Unfortunately, launching a new product line, whether credit cards, mortgages or specialized lending, can still take nine to 12 months for small to medium-sized credit unions. Much of this timeline depends on whether the institution chooses to build its own solution or buy a commercial off-the-shelf (COTS) product, with the latter typically enabling faster deployment.
Preparing for the Phygital Future
Banking is rapidly approaching a phygital future. The opportunities lie in small banks and credit unions moving quickly to introduce phygital products that blend the convenience of digital with trust and physical banking familiarity. Compared to larger institutions, these small institutions can be more agile, testing and launching operations faster. Virtual card numbers and digital-first credit cards are ideal starting points for low-cost phygital products. By embracing such innovations, credit unions can strengthen member loyalty and attract members who value easy, efficient banking solutions.
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