According to a recent consumer banking survey in North America, 18% of millennial customers switched their primary bank within the past 12 months, compared with 10% of customers aged 35–54 and 3% of people 55 and older.
Think about that for a moment. Millennials are six times more likely to switch bank accounts than their baby boomer parents.
Following a decade of turmoil, it’s time financial brands realize their world is changing fast. First, it may help to take a closer look at what’s positive about banks’ brand equity, and what’s not.
They may still have scale, financial capital, regulatory approval, brand recognition, customer data, distribution and, despite their problems, a reasonable level of customer trust. However, they are also slow, predictable, political, risk-and-change-averse; and mostly remain reliant on 30- or 40-year-old legacy technologies.
Banks have been lucky so far because so-called “challenger” banks have hardly challenged. Instead they have largely inherited traditional business models, but accepted thinner margins, or have business models with lower levels of compliance.
This is bound to change when truly disruptive fintech and techfin (big-tech giants, like Apple, Amazon, Google and Facebook) offer innovative financial products direct, to their own vast networks of customers.
What makes this all the more dangerous for banks is that next-generation customers’ expectations have been set by big tech, which offer highly personalized services and best-of-breed user experiences across all devices, based on vast lakes of customer data.
If banks are to thrive in the digital economy, they need to reframe the current challenges and turn them into opportunities. Otherwise a new landscape will emerge, with the best fintechs carving out profitable niches and nibbling away at what were once highly profitable core banking services.
Tomorrow’s banks need to become more like technology companies. They need to leverage the wealth of data they have at their fingertips, to better serve individual customers.
As for the digital transformation every industry faces, it is time financial services companies go beyond a blinkered focus on digitization and removing pain points in the customer journey. To drive future growth, more radical thinking is required, with a focus on timely personalized propositions, while identifying and solving real-time issues as they occur.
It goes without saying that this includes ensuring systems don’t crash or are breached, as security is probably the key value customers still associate with banks.
Banks need to reimagine their brands to foster more disruptive thinking and create innovation cultures. Of course, this is at odds with what has made them successful in the past, but they need to move beyond an “ignore-it-and-it-will-go away” mindset.
As they shift their emphasis from physical distribution to ideas, the leaders of tomorrow’s banks will need to rethink what business they are really in.
By redefining a new vision and their core purpose, they will be able to answer a fundamental question: why their business deserves to exist. In a real-time connected world, if their purpose is not defined and articulated with clarity, they’re unlikely to achieve strategic goals.
Ultimately banks need to think big and reimagine a future where they can become customers’ trusted experts, leverage their insights drawn from deep data to improve the customer experience, grow their wealth and deliver real-time personalized financial services and advice. At which point, the future of banks will no longer be in the balance.
But if they don’t, fintech will continue to consume their hors d’oeuvres — and at some point in the next few years, techfin will eat the rest of the lunch.