When Covid-19 moved the bulk of banking interactions online, U.S. incumbent banks and credit unions redoubled their efforts to improve their digital offerings.
They’re still working on it. In 2022, incumbents’ technology spending increased 10.6% year over year, according to Insider Intelligence — the sharpest rise in five years, despite ongoing economic uncertainty. About two thirds of it went toward improving the customer experience and service delivery.
But did that investment help them stand out in an increasingly competitive market where nimbler, digital-first challengers are gaining ever more ground?
Or was the money, time and effort spent on digital features that seemed ground-breaking, but weren’t actually innovative at all? We used our digital banking research platform, Fintech Insights, to see how traditional institutions’ digital offerings stacked up and to analyze their position in the market.
Below we present what the numbers told us.
Taking Stock of Incumbents’ Digital Offerings
Fintech Insights evaluates actual bank accounts, and the results present a picture of the state of the market at the date of our analysis, which was carried out in August 2022.
The analysis covered the mobile banking apps of Ally, Axos Bank, Bank of America, Capital One, Charles Schwab, Citibank, Citizens Bank, Discover Bank, Huntington, JP Morgan Chase, Key Bank, M&T Bank, M1 Bank, Peoples Bank, PNC, TD Bank, TIIA, Truist Financial, Union Bank, Wells Fargo, as well as the apps of two large credit unions, Alliant and Pen Fed.
The first thing we discovered in the mobile apps of those 25 banks and credit unions was similarity. In fact, every single organization on our list has at least some features in four key categories: money transfer, cards, payments, accounts, and support.
Many of the mobile banking apps analyzed offer only what customers consider table stakes.
Though some banks are more feature-rich than others in certain categories — JPMorgan Chase’s app has 56 money transfer capabilities — the distribution is fairly homogenous overall.
How banks compare by number of features for key mobile app functions
|Banks||Junior Acct||Money Transfers, Recipients, Payments||Accounts & Alerts||Cards||Wealth Mgmt & Investments||PFM|
|Bank of America||0||57||51||25||34||30|
Given that poor online and mobile banking capabilities are the third and fourth most common reasons customers switch banks — ahead of value for money and even customer service — it’s not surprising that banks would focus on their apps’ basic tasks.
But every mobile app we analyzed offers what customers consider table stakes, which seems to come at the expense of developing innovative features in other categories. And their lack of mobile banking features means traditional institutions are missing out on significant opportunities.
Three Missed Mobile Banking Opportunities
Research suggests that consumer demand is surging for e-wallet capabilities, wealth management or investment features, and junior accounts. But none of the 25 incumbents studied had e-wallet capabilities (M1 and Penfed had no payment features at all), 11 banks — almost half of the banks analyzed — had no wealth management or investment features, and only two, JP Morgan Chase and Fidelity, have junior account features.
Meanwhile, American parents collectively give their kids $41 billion a year in pocket money, according to RoosterMoney. And the declining usage of cash means most of them are doing it digitally.
Similarly, 75% of respondents in a survey by The Ascent said they’d used an e-wallet at least once in the previous month.
And Bain & Company expects the amount of investable assets globally — the bulk of them owned by younger, digitally-savvy individuals — to increase by $90 trillion between 2021 and 2030.
Up for Grabs:
Consumer demand is surging for e-wallet capabilities, wealth management or investment features, and junior accounts.
There is a significant market gap for user-friendly mobile banking services in these categories. Incumbents that successfully launch new features — or hone their current offerings — to meet the demand stand to gain a significant first-mover advantage.
Little Differentiation in the Market
Aside from missing out on substantial opportunities, incumbents face another challenge: lack of differentiation. Out of the 25 mobile banking apps we analyzed, 17 had no unique features, making their products nearly or exactly identical to those of their competitors. And what few unique apps exist are in short supply: The most differentiated incumbent — Wells Fargo — has only 15 unique features.
This is in stark contrast to U.S. neobank competitors. An analysis we carried out in April 2022 revealed that in the 17 organizations we looked at, only seven out of 500 functionalities were shared by all.
Of course, a large number of unique features isn’t necessarily the mark of a superior app. Nor does it mean that a particular app addresses customers’ needs better than others on the market.
In fact, many of the unique features we identified in neobanks all achieve similar goals. This suggests that these neobanks were spending a lot of time, money and effort trying to address problems others have already solved rather than innovating, probably because they lacked visibility into the market.
Misconceptions at Large:
Digital banks aren't always solving peoples' unmet needs. Many neobanks, in fact, are regurgitating innovative solutions that already exist in banking.
The lack of differentiation in incumbents’ mobile apps also suggests limited visibility.
Perhaps incumbents don’t know how to approach innovation. Or maybe launching truly innovative mobile apps is too costly and time-consuming to be worthwhile. No doubt incumbent banks have managed to get by with virtually indistinguishable mobile offerings.
If so, that strategy this isn’t going to be sustainable much longer.
Customers Demand Tailored Products
For today’s customers, a user-friendly mobile banking experience is the bare minimum. They want highly personalized products tailored to their needs — and the market for niche features is there for the taking, particularly when it comes to e-wallets, junior accounts and wealth management.
But to position themselves as the obvious choice in any niche they carve out, incumbents must study the market more thoroughly.
Knowing what’s currently available, identifying gaps, and learning how others have solved common problems could provide the spark incumbents need to differentiate themselves with products that are truly unique.