We’ve seen countless branches around the world, from India to Ireland to Italy, permanently shuttered, with basic in-person services, out of necessity, shifted to fintech solutions. Banks around the world are questioning if these changes will outlast the pandemic, but even before this coronavirus chaos commenced, consumer banking expectations were changing, and banks were shifting the way they serviced their customers.
The pandemic simply hit the accelerator in a big way, as it did with many other aspects of the economy, as the world moves towards an increasingly digital lifestyle.
The recent EY Future Consumer Index found that 43% of respondents reported that the way they bank changed due to the pandemic, and two-thirds reported visiting physical stores less. Respondents reported a 57% decline in cash usage with a 7% net increase in credit cards, a 10% net increase in the use of debit cards, and a 14% net increase in the use of online payment tools. For in-store payments, contactless payment options have become the preferred method, with a 34% net increase. One in five expect to use less cash and more contactless payments in the coming years. And don’t get us started on the ease of mobile check depositing!
So far, that all sounds like opportunities for financial service companies, but it turns out it is a bit more complicated. The Bain & Company NPS 2020 survey of about 56,000 consumers across 11 countries found that 25% to 51% of all banking products purchased, depending on the country, are not from the respondent’s primary bank. Their primary bank seems to be able to hold onto their clients’ deposits and checking accounts but is not able to capture their customers’ loans, credit cards, and investments. Why? Respondents most frequently cite better technology or a better process and convenience along with better brand recognition and superior security/fraud protection. When you think about the potentially deeply personal insight available to the institution holding an individual’s checking account, the inability to leverage that insight is rather stunning.
What we are seeing is the nexus of banking and financial services activity moving away from the bank and branch and toward the consumer in a digital-first format. Much the way shoppers expect to have in-store product availability via app, banking customers expect tailored services accessible anywhere and anytime – in other words, service expectations are high. So far, traditional banks are struggling to keep up with expectations, opening the door for non-traditional upstarts to offer the more profitable services to their customers.
This observation, of course, refers specifically to banks in the United States. It has only been in the past few years that platforms like Zelle have been widely adopted to facilitate in-network cross-bank transfers. Even then, there are daily and monthly limits on amounts transferred as well as fees for the next day versus 3-day transfers. But looking elsewhere, and the States are lagging behind its neighbors. Canada utilizes a similar system (E-Interac), but it is open to over 250 banks and supports sending funds to non-banked individuals through mobile wallets. Europe has utilized a payments system utilizing IBAN (International Bank Account Number) identifiers for at least a couple of decades. Africa has been using mobile wallet technology for years. Similarly, near- and far-east countries have adopted mobile wallet technology for some time, whether it is Japan’s “Osaifu-Keitai,” Korea’s “Naver Pay,” China’s “Alipay” or India’s “Immediate Payments Service” (IPS), the prevalence and adoption rates of this technology are booming globally.
The bottom line is that financial services are expected to be as simple and as available as any other app with financial services products facing commoditization pressures. To compete, banks will likely turn towards companies such as Accenture (ACN) to reinvent their technology infrastructure. We also expect to see more fintech focus from non-financial companies. For example, earlier this year, IKEA bought a stake in Ikano Bank to provide consumer banking services, and Walmart (WMT), which has had success in the past partnering with Mastercard (MS) and Green Dot (GDOT), has recently teamed up with Ribbit Capital to offer digital financial products.
Odds are banks ranging from Citigroup (C) and Bank of America (BAC) to JPMorgan Chase (JPM), as well as all of the ones in between, are witnessing the inroads being made by companies like Square (SQ), PayPal (PYPL), Lending Club (LC) and others. The question is whether big banks will look to build their own internal capabilities to compete, partner with select Fintech companies to expand their capabilities, or go on an M&A spree? The same is likely true for both brokerage businesses that are contending with Robinhood Markets (HOOD) and Acorn, as well as the insurance industry that is facing competition from Lemonade (LMND).
With consumers embracing buying cars online through the likes of Carvana (CVNA) and Vroom (VRM), we would argue consumers are more likely than ever to abandon the branch and embrace digital banking and payments. And as Apple has proven time and time again, an easy-to-use interface wins customers. Big banks, take note of your mobile app-first competitors.
CONTRIBUTORS Chris Versace, Lenore Elle Hawkins, Mark Abssy
