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The preference for a digital-first approach is becoming increasingly widespread among bank customers. Can traditional banks keep up with fintechs? Bill Lumley reports.
A report published last month, commissioned by the UK Competition and Markets Authority (CMA), confirmed that fintechs rank more highly than traditional banks when it comes to good customer service. Bank customers are demanding greater control over their accounts and facilities as much as consumers of any other sector.
This finding is supported by research from customer engagement platform Braze, which reveals that less than half of customers are happy with the way banks are communicating with them. Although the CMA report is UK-focused, similar changes in bank customer demands are occurring around the world.
Founder of Pennies to Pounds, Kia Commodore, told a Financial Times Live event this month that it is important for consumers to “love” their banks because there are now so many other choices.
Competition a key driver
At the event, entitled ‘The Banking Revolution’, co-speaker Pierpaolo Barbieri, founder and CEO of Argentine financial services start-up Ualá, said technology is creating competition in financial services for the first time. “We operate in a region of the world where there are a lot fewer banks, and I think that's a bad thing,” Mr Barbieri said. He told delegates that the existence of more banks, such as in the UK, Europe and the US, is positive, as it drives competition for a better user experience.
In Argentina there are 60 banks; in Mexico, where his bank has a licence, there are just 49; and in Colombia, only 35, explained Mr Barbieri. Operating in a “stagnant system” where there is no effective competition, less than five years after Ualá’s launch it has become one of the top five net promoters of any industry in Mexico, he said.
“For the future, what consumers want is to be able to choose. We need that competition to push ourselves to improve. In so doing, I think we can be a lot more user-friendly and a lot more transparent,” said Mr Barbieri.
Digital first
Mr Barbieri stressed there is a fundamental demand from consumers for universal, digital-first accounts. “We cannot digitise the economy if we do not give everyone an account that is free, accessible, transparent, and digital first. And, while this applies to [all age groups], if they’re under 40 they’re crying out for it a lot more,” he added.
Endorsing this view, Ms Commodore said: “Typically the under-30s are looking for an all-rounder bank. They are often transferring from the bank used by their parents. As they start to earn more money and get their first job, they’re now looking at different things and they’re realising that their bank doesn’t provide many of the investment options that they are looking for.”
we cannot digitise the economy if we do not give everyone an account that is free, accessible, transparent, and digital first
“Now, and especially in the UK, we’re seeing more digital banks who haven’t any physical branch that you can walk into. And for some people, there is still some scepticism because they associate bricks and mortar stores with trust,” she added.
Only around 20% of economies are currently digital, according to Mr Barbieri, who said: “We believe digitisation to be inexorable. Every day, there are more and more businesses launched that sell online.” He explained that Ualá was the first to digitally onboard customers in Argentina, where the greatest uptake was from the younger generation. “We are now targeting new demographics,” he added.
Customers want more
Customers are now demanding that financial services offer the same facilities as other industries, and for several reasons. “They don’t want to go to Walmart when they can go to Amazon. They want their financial services delivered in the same way,” said Mr Barbieri.
“Another reason is simplicity. ‘Why can’t I understand how much the annual percentage rate is clearly, as opposed to you hiding it on the 17th page of a written report that nobody’s ever going to see?’, they ask.”
Mr Barbieri’s third reason is transparency. “Consumers really want the information to be clear and shareable,” he said, explaining that interoperability, like that offered by Open Banking in Europe, is likely to spread further afield. “We are already seeing it debated in Brazil and in Mexico,” he added.
Ms Commodore agreed, saying consumers want to be able to understand fully what they are committing to when taking out a loan, for instance. “When you shop online, you understand what that looks like, how long it takes for it to come to you – all the finer details are very clear. And that’s what consumers want when it comes to banking.”
The direction in which consumer preferences are heading makes for a promising outlook for fintechs, which are already meeting many of these demands. Can traditional banks keep up?
