63.1% of global banking customers are said to use products or services offered by fintech firms, and they are beginning to win overwhelming favour with customers compared to banks. Moreover, we are viewing a higher adoption rate of fintech products and services by Generation Y, or so called ‘millennials’ (individuals from 16-to-35 years old according to 2016 World Retail Banking Report). Gen Y customers are becoming more and more influential, importantly to banks, given their large presence and expected longevity.
Customers’ expectations are also augmented by the superior experience they are receiving with the technology in their day-to-day life. Customers are expecting much more in the way of innovation, but are not getting it from their banks. — Anirban Bose (head of global banking & financial services, Capgemini) and Vincent Bastid (secretary general, Efma)
Customers have more technological interaction in their day-to-day lives, and expect innovations in services and technology from all of their service providers, including their banks. However, some banking institutions are failing to provide these innovative services. Positive customer experience and satisfaction are crucial for profitability and sustainability for any business. On a global level, we are viewing a decline of banking customers’ satisfaction, especially among Gen Y. Millennials’ expectations for their service providers tends to be lower in comparison with other age groups. For example, in Western Europe the percentage of positive Gen Y customer experience is reported at 51.2% (-7.3% in comparison to other age groups), and in Asia-Pacific the satisfaction level for Gen Y was at 36.9% (-8.8% vs other age groups).1 Gen Y are using advanced digital technology in their daily lives and would expect their banks to ramp up their online services providing the same level of interaction and easy to use services as their Uber, eBay and Airbnb apps. They are switching from traditional banks to innovative service providers, becoming less loyal to their primary banks.
Less fidelity to banks
Loyalty is an emerging issue, and customers with positive experiences are significantly more likely to be loyal to their primary bank. According to the 2016 World Retail Banking Report, Gen Y customers tend to have less confident, trust and loyalty with their primary bank. Millennials, with only 45.8%, reported that they would stay with their bank for the next six months, compared to 67.2% from other age groups.1 Gen Y customers’ indifference towards their bank is turning into a customer retention problem for their banks.
Fintechs are gaining momentum across the globe, and we’re seeing a higher adoption of their services especially among Gen Y. The demand for fintech is being driven more by millennials (with 67.4%) than by other age groups (with 55.9%). This willingness to adopt and try innovative financial offerings is highlighted by the recent survey about PSD2 and personal financial management, where in the UK 76% of banking customers under 35 are most likely to use financial management services vs 55% in other age groups.2
The difference between Gen Y adoption and other age groups is even more significant among emerging markets. In Latin America, 83.2% of Gen Y consumers are using fintech financial products and services.1 Banks and fintechs bring various value proposition to their clients. However, fintechs are addressing the shortcomings of the banking industry. Millennials are perceiving fintech product and services value as being easy to use (81.9%), offering faster services (81.4%), and providing a good user experience (79.6%).1
Fintech adopters more likely to refer to friends and family
Going back to satisfaction, the fintech customer base is growing very fast through referrals. In Western Europe, 51.8% of customers are more likely to refer a friend to fintech vs their primary bank, at 35.4%. In Asia-Pacific, 50.1% of customers are more likely to refer fintechs, in comparison to 31.9% to their primary bank.1 Referrals are key to attracting new customers and retain them over time. As the volume of referrals grows, fintechs will benefit from higher adoption rates and lower acquisition costs.
Higher referrals to fintech firms doesn’t necessarily mean disaster for banks! Banks, at this time, still have higher levels of complete trust and confidence. Banks are being perceived by customers as having three main advantages over fintechs:
- customers’ trust, by 70.3%
- established customer relationships, by 65.3%
- robust risk management, by 65.3%.1
However, with increase in regulations, customer protection, addressing security and privacy issues, fintech firms are gaining more credibility.
Banks and fintechs can work together on their strengths and weaknesses to develop and address customer expectations. Working together, fintech innovative technology can help banks offer their users engaging services, re-equilibrating the trust/innovation paradigm. According to VocaLink, 69% of banking consumers are most likely to consider a financial management service from their bank rather than a fintech firm. The value propositions of banks and fintechs are complementary; banks have the advantage of having pre-established customer relationships and higher customer trust, while fintechs have the innovation and technology required to enable higher customer engagement and retention.
It’s important for banks to re-engage with their clients to maintain retention and adapt their online banking offer with innovative tools and services.
1. 2016 World Retail Banking Report
2. PSD2 VocaLink Survey
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Photo: Elena Elisseeva, Shutterstock.com
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