Q: The ‘new banks’ are changing the balance in the financial sector

Technology and digitalization have created great opportunities for new players to enter the financial industry. To cope with emerging competition, traditional banks need to react immediately, creating new dynamic business models that meet the current and future needs of consumers. This conclusion emerges from the latest version of the annual survey of EV, NextWave Global Consumer Banking Survey, which captures the views of 12,000 consumers from 14 developed and emerging economies around the world.

According to the research, traditional banks still dominate in terms of maintaining the primary financial relationship (PFR) with consumers, but their share is shrinking in favor of “neobanks”, ie companies, mainly from technology sector, which provide financial services regardless of whether they hold banking licenses, including FinTechs, electronic payment platforms, savings applications and investments. The speed of the shift to neo-banks, in all age groups and geographies, should be a concern for traditional banks, according to the survey.

The trends created by the spread of the pandemic and the changes in consumer habits, shift the field of competition to areas where emerging players enjoy a comparative advantage. On the other hand, the concept of trust, which remains crucial for maintaining a financial relationship, is the strong advantage of traditional banks.

More than one in four consumers worldwide (27%) work with new banks. The penetration rate is limited to 19% in Europe and the US, but reaches 35% in the Asia-Pacific region. Beyond the US, among the other mature markets in the sample, the adoption rate of new banks is higher in Germany (20%), China (17%) and Hong Kong (14%), while the rates are much higher in emerging markets. markets such as Indonesia (45%) and Vietnam (36%).

The success of new banks is not limited to younger ages. While 37% of consumers who maintain a financial relationship with new banks come from the 18-34 age group, a significant 27% are over 55 years old.

Digital payments: the strong paper of new banks

Deposit products (69%) and digital payments (65%) are the ones most often chosen by new bank customers. Investment products / wealth management products (30%), insurance products (20%) and loan products (19%) are less common among new bank customers. The rapid spread of digital payments, especially after the pandemic, is currently the most important asset for new entrants around the world, the survey says.

The increased duration of cooperation leads to the use of more products

However, experience shows that, in the case of traditional banks, customers increase the number of products they use over the years of cooperation, adding new products to the deposit products that are the backbone of cooperation. In the same way, it is certain that the new banks, as the average duration of cooperation with consumers increases – now it is already 5.2 years compared to 7.9 of the global and national banks and 8.2 of the local banks – will take advantage of the their comparative advantage to expand their product portfolio beyond digital payments.

At the same time, consumers are expanding the number of partnerships they have with financial service providers, as they seem convinced that no single organization today can meet all their needs. Today, customers who maintain their core financial relationship with neo-banks have an average of three financial relationships in total, compared to 2.5 of global and national banks and 2.3 of local banks.

Trust remains the “key”

New banks are gaining market share today mainly thanks to the quality of their products and the personalized experience they offer to the consumer. However, trust remains a crucial factor and, in this area, traditional banks operate from a position of strength. The vast majority of consumers worldwide (82%) trust the organization with which they maintain their basic financial relationship, with the lowest rates being recorded among the younger age groups, and in particular Generation Z.

The reasons why consumers trust financial service providers also favor traditional banks. Personal relationship (74%) and trustworthiness (73%) are the two main sources of trust, areas where traditional banks seem to outperform, due to their long history, longer customer service and consumer orientation. to them at critical stages of their lives.

Super apps: a threat and an opportunity for traditional banks

The research also records the growing preference of consumers for super apps, ie digital tools that combine many financial services (eg savings and checking accounts, investments and payments) through an application or digital experience. Super apps enable the customer to manage his accounts evenly, even if he maintains more than one financial relationship.

According to the survey, traditional banks can take advantage of this trend if they react in a timely manner, capitalize on their comparative advantage, increase consumer confidence – especially in terms of personal data security – and redesign their strategy for approach and interaction with the customer, utilizing digital technology.

They will achieve this by creating integrated, customer-centric, interactive and interconnected digital ecosystems, utilizing all available data on consumers’ economic life, goals, social behavior and personal preferences to provide them with improved, personalized day-to-day financial services. . In this way they will be able to dominate the two primary categories of customer relationships: holistic planning services, long-term goals and critical stages of the customer’s life, and more regular spending and payment processes, which are more closely linked to the choices of daily living.

Commenting on the research findings, o Mr. George Papadimitriou, Head of Financial Services Department of EV Greece, stated: “As in other markets, the digital revolution has created opportunities for technology companies to claim a significant share of the financial industry, and the pandemic seems to have reinforced a trend we have seen internationally in recent years. Trust, personal contact and credibility remain. However, they are an important element in choosing a financial services provider.Global, but also in Greece, traditional banks have the opportunity to capitalize on this comparative advantage they enjoy and, using digital technology, to offer consumers a personalized banking experience, adapted to their current but also their future needs.

“No bank customer today just wants to borrow money – they want to study, get a house, a car, implement a business idea, invest their surplus income to ensure a decent life after retirement and so on. “Modern banking needs to be built around the complete coverage of such specific needs, utilizing wider relevant ecosystems. In such an integrated customer-centric model, financing is simply a parameter.”