Digital services have become the key battleground in banking. New entrants offering pure online banking are challenging traditional banks, and the rapid evolution of AI and machine learning technology means that struggle is only likely to intensify in the years ahead.
But it is a revolution that consumers have embraced and Sopra Steria’s Digital Banking Experience report into consumers’ view on technology paints a clear picture of strong and rising demand. The survey, carried out in partnership with Forrester and Ipsos, found that four out of ten customers now have an account with an online bank. Of these, 36% consult their banking app at least once a day and an even higher proportion, 58%, say online or mobile services are their preferred method of dealing with their bank.
Perhaps the most remarkable figure is that 67% say they would be tempted to use an AI-assisted system to manage their account.
The 2023 Digital Banking Experience Report research is currently underway, but Pierre Lahbabi, group financial services lead at Sopra Steria, fully expects the trend to continue. “This is about a demand for hyperconnectivity. The more we go down this road, the less consumers are likely to interact with their bank in person and the more they expect from digital services,” he says.
The penetration of digital banking varies across markets. The UK and northern Europe are more advanced along the digital road that southern European markets, while some markets in Africa appear to have skipped the bank branch stage altogether and are embracing online and mobile banking wholesale.
The easy conclusion to draw is that where leading digital markets go, others will inevitably follow and that banks must themselves follow that demand and add ever more digital dimensions to their offering.
While the broad technology trend is clear, Lahbabi argues it hides a complexity that requires a more sophisticated understanding between consumers and banks.
An uneven playing field
The rise of fintech and the digital challenger banks are creating a major challenge to traditional banks, but that does not automatically mean banks can or should simply match or copy the challengers, Lahbabi says. “The newcomers do not play on an equal footing; they do not have the same legacy and, as young business, they are not so driven by the bottom line. But the end user sees no difference. So, the banks are having to split their attention between innovation and cost control, offering more services while optimising costs, for instance with process automation and AI.”
The demand for a digital experience is also tempered by the fact that many consumers still demand human interaction with their banks for key issues.
For example, globally 41% of consumers still want a direct conversation when taking out a mortgage. Even in the UK, one of the most advanced digital banking markets, the equivalent figure is 27%. Craig Wilson, managing director of private sector at Sopra Steria, UK points out that this figure is even higher on some issues. “When a transaction cannot be carried out online, 52% of UK customers want to speak to an advisor – a higher proportion than the global average of 45%,” says Wilson.
There is no easy answer to the conundrum faced by traditional banks, not least because the demands from consumers themselves are complex and at times contradictory.
Managing expectations
In the UK, 24% of customers have experienced an attempted hack on their banking details. These customers tend to be younger, are more likely to check their account every day and more likely to have more than one bank account. Significantly, among those who have been victims of a successful hack, 41% think digital systems have improved security – though this leaves more than half who do not.
Meanwhile, the DBX survey shows consumers are keen on increased personalisation. Just 26% are satisfied with the current level of personalised service they receive from their banks, and just 35% feel the services offered by their banks at key life moments were perfectly suited to their needs.
“This is a tricky issue,” says Lahbabi. “Consumers expect their banks to provide the intimacy of a personalised relationship, but naturally also want confidentiality. AI will need to be carefully managed to avoid that risk. How would we feel about our bank spontaneously offering us a loan to help deal with a family tragedy? Is that the right level of personalisation or is it intrusive and inappropriate?”
The risk, Wilson suggests, is that banks are purely reactive to the apparent demands of the consumer for more personalisation or AI assistance. “Are end users really aware of what they need? What is truly desirable? And what will be the financial cost?”
To question consumer expectations may seem like heresy. But given that the financial sector itself often struggles to navigate the digital revolution, it should not be controversial to ask whether consumers themselves also need a better understanding.
There are no easy answers, says Lahbabi. “Everyone - banks, fintechs and consumers – are together on this steep learning curve. Banks need to respond to consumer expectations and the direction of travel is clearly towards online and mobile banking. But blindly chasing consumer expectations to compete with the newcomers is unlikely to be the best or even the easiest solution.”
