Despite the rise of online banks, millennials are still visiting branches

Online banks are betting that millennials don’t want to visit physical branches, but a new report from Jefferies challenges that theory.

Physical banking locations “are still viewed as important” — especially by younger folks, and are still a top factor in picking a new bank, according to a new Jefferies retail banking survey published Thursday. Respondents are still relying on physical locations, especially those age 18 to 34-years-old.

“Perhaps surprisingly, younger respondents indicated branch/ATM proximity as first and digital/ mobile capability as second when choosing a new bank,” Ken Usdin, Jefferies equity analyst, wrote in a note to clients Thursday.

Nearly 75% of respondents visited physical branches at least once per month. Still, younger respondents were more likely than older ones to pick a bank with higher interest rates, but without branch convenience.

Digital only banks have been one of the hottest areas in financial technology, or fintech, investing. So-called challenger banks have raised more than $3 billion from venture capital in 2019, according to CB Insights. The third quarter brought a new record with $1.3 billion pouring into the sector during that three months alone.

Chime is the leading branchless bank battle in the U.S., and Axios reported earlier this year that the start-up was raising new funding from investors at a valuation of at least $5 billion. Popular U.K. branchless banks Monzo, Revolut and N26 have all launched in the U.S. this year, too. Brazil’s NuBank is the most valuable digital bank with a $10 billion valuation.

Jefferies highlighted the need for retail banks to invest meaningfully in the digital evolution, and compete with these start-ups.

“Tech innovation is occurring at a quicker pace, fintech and non-bank competition remains a long-term threat, and a tough revenue environment makes for difficult choices on expense allocations,” Usdin said.

— CNBC’s Michael Bloom contributed reporting.