The tipping point for retail banking

By Madhvi Mavadiya | 3 August 2016

Capgemini and Efma have published this year’s World Retail Banking Report which reiterates the importance of transforming the traditional sector into a digital banking ecosystem. The survey found that “a tipping point is imminent, with fintech firms beginning to win overwhelming favour with customers compared to the entrenched banking industry”.  

Fintech is definitely a game changer and it could be said that banks are becoming increasingly aware of this, but changes do need to be made so that customer user experience is at its best. Capgemini and Efma surveyed 16,000 customers and 140 industry executives from 32 countries and found that fintech firms are gaining prominence and will define the future of banking.

Know Your Customer

Using the Capgemini Customer Experience Index (CEI), it was clear that 2016 has seen a vast improvement in banking customer service and it was shown by more than 85% of countries seeing an increase in their CEI score. The biggest improvements were seen in countries like the Netherlands. “This increase, driven by improvements in meeting expectations for credit cards (9.3 points) and loans (9.0 points), caused Netherlands to shoot up in the country rankings from 17th to second place, just behind first-place Canada.

Dutch banks, which have closed hundreds of physical outlets in recent years, have been among the most successful at delivering advanced digital capabilities supplemented by more streamlined branch networks,” the report read. The part of the world that saw the biggest decline was in Latin America where Mexico and Argentina’s CEI dropped sharply, but the largest fall was seen in Spain and the country now ranks as last place (32nd) out of all that were analysed.

However, Gen Y customers did not seem happy with their current banking service in comparison to Gen X and other age groups. “The difference was especially apparent in North America where only 47.7% of Gen Y customers reported positive experiences, compared to 62.5% of Gen X customers and 75.7% customers of other age groups. These lower levels are cause for concern as the younger generations become increasingly influential.”

Gen Y customers are particularly important to banks, given their large presence, expected longevity, and avid use of technology. Yet having grown up on a steady supply of advanced digital technology, Gen Y customers are also more difficult to please. They also have significantly less trust in their primary bank compared to other age groups. To remain competitive over time, banks must gear up to meet the more exacting demands of this important segment.”

An average of 55.1% of customers said that they were likely to stay with their bank for the next six months and North America took the lead in customer satisfaction. “Our findings confirm a strong correlation between positive customer experience and loyalty, highlighting the need for banks to devote additional resources to improving all aspects of how customers interact with the bank,” the report found.

Fintech Influencers

Fintech is helping customers get closer to their financial services. The report explores how financial technology is redefining what it means to bank and nearly 63.1% of customers said that they have used products and services that are offered by fintech companies. Despite CEI being the lowest in Latin America, fintech penetration is the highest in the emerging markets and 77.4% of banking customers are fintech users in this region.

The relative lack of banking infrastructure in emerging markets appears to be creating a hospitable environment for fintech firms to not only provide basic services, but also leapfrog beyond the standard levels of service found in developed markets. Customers in emerging markets also tend to have more relationships with fintech firms, likely reflecting gaps in services provided by traditional banks in those regions.

Customers trust banks the most, but fintechs in some areas is catching up, according to the survey. In addition to this, trust in fintech is set to increase with regulators giving more attention to this sector and addressing security and privacy concerns.

  • 70.3% believe customer trust is the most advantageous quality banks can have over fintech
  • 65.3% think that it is established customer relationships
  • 65.3% believe that robust risk management is the most important

However, some of these strengths could actually morph into a weakness. “For example, though banks have a wealth of customer data, they have not optimally leveraged it, resulting in only 56.4% of executives counting it as a strong point.” These strengths may not be strong enough to compete against fintech companies in the future as technology will be used to produce innovative products and therefore, traditional banks should recognise their vulnerabilities early.

This is already happening as the survey’s findings confirm that global investment in fintech was expected to nearly double from $10 billion in 2014 to $19.7 billion in 2015, and 60% of investment came from outside the financial sector. “The dramatic rise in investment indicates that fintech’s influence is seeping into all aspects of traditional banking.”

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