For much of the 21st century, bank and credit union executives have been warned of the threat posed by fintechs, digital-only banks, neobanks and big techs. Some of the warnings have been overblown, but few would dispute there has been an impact from new types of banking competitors. Consumer and business customers have voted with their fingers on keyboards and mobile screens shifting pieces of their financial business to new players.
The results of a big new study of banking consumers worldwide confirms the ongoing revolution in banking, highlighting important developing trends. But it also surfaces key findings that should cheer traditional banking providers on the one hand, and possibly redirect some of their strategic initiatives on the other. Whether a strategic change would be justified based on one survey, albeit a large one, would have to be carefully weighed, but the findings deserve close attention.
Building on a similar effort in 2020, EPAM Systems and its consulting division EPAM Continuum, conducted a survey of 20,000 adults in markets around the world including the United States, U.K., and Canada. 3,006 of those surveyed were from the United States. The survey was conducted in June and early July 2021.
One of the striking findings from EPAM’s Consumer Banking Report 2021 is that despite all the new competition and all the digital uptake by consumers, traditional institutions in many respects still have the upper hand. The table below highlights some of these ongoing advantages. The biggest gap between traditional and upstart comes in the area of security, not surprisingly.
Fig. 1 – People’s trust in traditional vs. digital institutions
|Traditional Financial Institutions||49%||43%||40%||38%||34%||26%|
|I Don’t Know||18%||20%||19%||17%||22%||28%|
Source: EPAM Systems
But, the good news for incumbents only goes so far. For example, the number of people that say they are happy with their financial institution dropped significantly from 86% in 2020 to 78% in 2021. EPAM notes that 12% of consumers are also looking to to change their current bank accounts in the next six months.
To learn where banks and credit unions should be making changes to keep customers happy, The Financial Brand checked in with EPAM’s Global Head of Banking and Wealth Management Panos Archondakis to explore the trends banks and credit unions need to concern themselves with in the year ahead.
Trend 1: Get Personal, Don’t Personalize
Archondakis says banks and credit unions are overly concerned with providing “personalized services,” when, in reality, people actually want personal interactions. More than three out of ten (34%) consumers say they are looking for more of a personal interaction regarding their finances after the pandemic.
“Consumers don’t consider personalized, digital self-service to be personal service.”
— Panos Archondakis, EPAM
“The picture we’re getting is that consumers don’t consider personalized, digital self-service to be personal service,” he continues. “If I can provide personal interaction — whether it’s a call, or some other way of interacting in a real-time way with another human being — that’s a service that consumers indicate they are interested in.”
In other words, banking providers can’t just weave in conversational AI features and call personalization done. While these tools play an important role in a modern banking landscape, they may not be as effective as institutions realize for genuinely taking care of consumer needs. Archondakis says he would even hesitate categorizing use of conversational AI and chatbots as a personal interaction, because the maturity of the technology today is not sufficiently human-like to replace having a conversation with well-trained human being.”
The consultant goes on to point out that the study found that even Gen Z — which, as a group, is very comfortable with a digital interface — still prefers to have a personal interaction with their financial institution in one form or another. (More on this in Trend 3.)
Trend 2: Tension Over Branch Networks
The banking industry as a whole is obsessed with the “to branch or not to branch” narrative. Every time a new banking report is published, the debate flares up and EPAM’s study adds fuel to the fire. On the basis of cost alone, most financial institutions would love to get rid of their branches for good, Archondakis surmises.
“From an operational perspective, they would like to be more efficient,” he explains, which would help them better compete with digital-only, agile competitors.
However, contrary to the opinion of many observers, collapsing branch footprints very well may not be what people want. EPAM’s report finds that banking customers in the U.S. specifically expect to visit their branch more than 40 times a year going forward. That’s a high number and actual visits may not equal the expectation, but it does confirm that people haven’t rejected the branch experience.
U.S. consumers say they expect to visit their financial institution’s branch at least three times a month in the year ahead.
The U.S. results are consistent with global data. The report found that almost four out of five (79%) consumers worldwide used a physical branch in the last year and 35% use a bank branch at least monthly.
“We see a divergence between what the banks think consumers are thinking” and what they are actually thinking, Archondakis observes. “And there’s a little bit of tension as a result.”
Industry experts surmise that older generations are the ones most likely to still rely on physical branches, which Archondakis says is supported by the survey results. But that’s not the whole story.
Younger generations may be just as likely to take a trip to their local bank or credit union. 30% of Gen Z respondents said access to a physical branch had become more important to them in the past year, especially as Covid-19 forced branches to close temporarily. In fact, in that same time frame, two out of every five 18 to 24-year-olds (the older portion of Gen Z) used their physical branch at least monthly.
Trend 3: Deciphering Gen Z’s Surprising Preferences
As the youngest banked generation, Gen Z is a crucial segment for financial institutions to understand, especially as each year brings millions more of them into adulthood.
That’s not a new observation. However, what has not been as clearly articulated is what Gen Z specifically wants from a branch banking experience. The EPAM report covers that.
For instance, Gen Z consumers say they would be almost twice as likely (46%) to visit a branch if they could drop-in for financial advice and 43% more likely if their banking provider offered a financial experience center. Another 40% more said they would be more likely to use branches if there were financial education sessions there. The table below indicates other features that would enhance the branch experience for Gen Z versus all consumers.
( Learn More: BofA Crushing It with Financial Wellness App (Here’s Why) )
Fig. 2 – Features that would entice Gen Z to use a branch
|Gen Z Consumers||38%||40%||43%||46%||35%||37%|
Source: EPAM Systems
The research probed further on the importance of financial education to members of Gen Z. For instance, 32% of this young generation said access to financial education has become more important to them in the past 12 months and a substantial six out of ten (61%) say they would like their bank or credit union to give them advice on how to manage their money.
This may stem in part from their attraction to alternative sources of income and building up their investment portfolios. For instance, 36% admit they wish their banking provider would offer some sort of cryptocurrency investment option, especially given that over half (56%) have already engaged in crypto investing. Almost two thirds of Gen Z (62%) are “significantly more” likely to trust their financial institutions to handle their crypto investments than nonbank cryptocurrency providers.
The Upper Hand:
More than a third of Gen Z customers wish their bank would offer cryptocurrency investing options — primarily because almost two-thirds of them trust legacy institutions more than cryptocurrency providers.
In addition to desirable branch features and crypto offerings, the report also indicates that the younger generation expects greater social responsibility from their banks and credit unions. More than one out of two (53%) say that.
Trend 4: ‘Unbundled Banking’ Will Stick Around
While most people think that their banks and credit unions did a good job handling the pandemic (only 11% globally said otherwise), the reason why consumers and small businesses ultimately turn to challenger banks and fintech payment providers is because they need financial services that their banking provider either doesn’t offer, or isn’t very good if they do offer it.
What is keeping people from switching providers altogether is that consumers can build up a portfolio of services made up of different financial companies, which Archondakis says might make it less likely that they will “actually change their main bank account.” In fact, the study found that more than a third (36%) would indeed rather use various financial companies for different needs, than just a single provider.
That figure might be higher, but more than four out of five people are deterred from leaving their current banking provider due to security or because they still feel a sense of loyalty to their existing bank relationships.
However, that doesn’t mean that banks and credit unions can get comfortable thinking people won’t switch.
10% of U.S. consumers did change their primary bank accounts during the pandemic, according to the report. That figure may reflect how financial institutions were able to take care of people during the pandemic — 55% of Americans specifically feel financial institutions handled the pandemic well. However, looked at over the last decade, just over half of U.S. banking customers (53%) have changed banks.
It’s great that people are happy with their traditional financial institutions, but that does not mean that banks and credit unions can stop innovating.
Finally, the importance of upgrading and maintaining strong mobile apps can not be underestimated, EPAM’s report says. More than half of all banking customers (56%) are using their financial institution’s mobile app every week and a quarter (24%) are using it daily.
Fig. 3 – Generational breakouts of bank mobile app use
In the past year; global response
Source: EPAM Systems
Last, but certainly not least, is the fact that investments are becoming increasingly important to consumers as well — even those without high paychecks. For instance, EPAM’s report found that almost a fifth (18%) of those investing in stocks and shares makes less than $40,000 per year. 52% of U.S. respondents are using an online investment platform. Fidelity leads the way with Robinhood coming in second.
As the report states, “a new breed of digital platforms has democratized both the tools needed and the knowledge required to wield those tools, allowing individuals access to the kinds of investments that were previously only available to a select few.”