2 in 5 consumers predict the bank of the future will be a technology company
The future of banking is on everyone’s mind, but often as something abstract, with no imminent urgency.
But consider that the future that was talked about five years ago – which seems almost yesterday – is what is happening now. So it’s a little disconcerting to learn that two-thirds of bank customers in a major new study think most consumers will consider their primary bank to be entirely online. in five years.
Maybe it will be true. Maybe not. But already more young adults — Millennials and Gen Z — consider a big tech company like Apple or a fintech like Venmo or an online-only bank like Chime as their primary financial provider than a regional or community bank.
Clearly, the future of banking will be different and primarily digital.
What bank customers say
Traditional institutions, especially regional and community banks and credit unions, have a window of opportunity to meet the needs and wants of their future customers and claim a competitive advantage, but only if they act quickly, according to the study.
“Digital banking… is clearly no longer an option or an asset but a must-have that drives growth, loyalty and positive experiences,” concludes a nationwide survey by Alkami Technology. “At the same time, younger generations are bringing new and different expectations that…create a significant opportunity for every financial institution willing to adapt.”
The company surveyed 1,500 US bank account holders who are, to varying degrees, active in digital banking. Respondents were weighted according to the 2020 U.S. Census based on age, region, gender, and ethnicity. Among the main results:
- The younger generations stand to gain because nearly a quarter of them do not know if their current main financial institution will remain so in the coming year.
- People who interact with their financial institution through digital means, whether through mobile apps or a website, tend to use more products than those who don’t – and the more they connect often digitally, the more products they profit from.
- Clients of regional and community financial institutions are less likely than all other groups to believe that their financial relationship will develop over the next year.
- Providing excellent digital banking experiences will go a long way to increasing usage of other products across generations.
- An often overlooked way to attract consumers is to provide personal money management services through digital platforms.
The time to study the trend has passed
Adding to the report’s key findings is the stark assessment that financial institutions must act quickly to deliver the digital services that consumers are increasingly seeking.
“Today’s financial institution is not what consumers think the financial institution of the future will look like or offer,” the study said. He revealed that 44% of banking customers believe the bank of the future will be a technology company.
65% of banking customers think most Americans will consider their primary bank to be fully online in five years.
As noted above, Alkami’s sample was made up of people who were active users of digital banking. However, the report says “active” includes pretty basic things like finding account balances, paying bills, and transferring funds — a pretty low threshold, in other words.
“All of this underscores the urgency and importance for leaders of financial institutions to act now to better adapt and serve consumers,” the report said.
Read more: The Battle for Consumer Attention in the Digital Banking War
The preference of major financial service providers is changing
The two younger generations of adults – Millennials and Gen Z, whose ages now range from 22 to 45 – are more likely to claim that a neobank, big tech or fintech company is their main supplier financial. Generation X and Baby Boomers rely heavily on regional or community banks and credit unions.
Which companies do consumers consider their primary banking service provider?
Source: Alkami Technology
“This creates a clear imperative for regional and community financial institutions, as they risk seeing their clientele or members increasingly age as emerging generations initiate and establish relationships with alternative financial providers,” observes the study. . “Regional and community financial institutions must realize and act now to reverse this trend. »
Interestingly, all generations fairly equally claim large national banks or credit unions as their main financial institutions – about a third of each of Generation Z, Millennials and X, and nearly half of Baby Boomers. This may change, however, as noted below.
The growth of risky regional and community banks
Regional and community banks and credit unions are a low priority when account holders consider growing their relationship with their primary financial institution in the coming year. Only 27% of customers primarily using these institutions expect to increase their deposits, loans or other transactions there. In comparison, the percentages of clients primarily using the other provider categories were all significantly more likely to develop their relationships: large domestic financial institutions (35%); neobanks (51%); fintechs (53%); and large tech companies (57%).
“This is a dramatic difference in expectations that can influence consumer behavior,” the study says. “Regional and community financial institutions must act urgently to address this potential risk to organic growth.”
Simply put, the more often account holders access a financial institution digitally, the more products and services they use.
The research also probed the correlation between the use of digital banking services and the depth of the relationship. Data revealed that digital banking users who access their mobile app and/or online banking multiple times a day have 1.71 times more products with their primary financial institution than those who access the services digital banking at least once a year.
The correlation is linear with frequency of engagement, with those who access digital banking services at least once a week having 1.3 times the number of products; those who access it a few times a month have 1.21 times more products; and those who access it once a month have 1.08 times the number of products.
Digital excellence is the equalizer
What is the first thing a financial institution must do to attract and retain customers? Make the digital experience easy to use, clear, intuitive, complete and personalized.
This is particularly crucial for regional and community financial institutions. The study revealed that these have a penetration of existing products that is 14% lower than the national average.
“40% of regional and community financial institution account holders say the relationship gap between them and their financial institution can be bridged with a completely satisfying digital banking experience,” the study notes.
This goes for all generations. “In the case of digital banking, great experience is independent of age, allowing regional and community banks and credit unions to confidently scale their capabilities to meet their existing consumers and an untapped market of incumbents. of emerging accounts where they currently are,” the study said.
Growth opportunity hidden in plain sight
Three words could define the next big growth area for banking: personal finance management. Specifically, the modern, app-based version that’s easy to use and often incorporates prompts and reminders.
“The rise of personal financial management creates new expectations and clear differentiators for financial institutions to take the initiative to serve their stakeholders,” the study said. “Not only is personal financial management highly desirable across generations, but it can also drive engagement and connection with consumers at a critical time in today’s fiercely competitive marketplace.”
As shown below, when asked to rank 14 distinct financial services as the most important, Financial Wellness Accounts came in just behind savings accounts and credit cards.
The study claims that 64% of the banking market does not have a financial wellness service.
“The desire for personal financial management is a hidden trend that should move up the priority list of leaders of financial institutions,” advises the study. “Most consumers do not subscribe to financial wellness services today, which represents a significant opportunity for financial providers to seize.”
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