Survey finds incumbent banks are at a crossroads, losing customers to nimble fintechs

The news: Bankers are concerned about their ability to deliver high-quality, personalized omnichannel experiences to their customers, according to a report from Capgemini and Efma.

for their last Global Retail Banking Reportthe two companies surveyed 8,051 consumers and 142 banking executives based in 29 countries.

What’s the problem? Consumer responses regarding fintechs and incumbent banks contrast sharply and are worrisome for banks now that customers can switch banks with a tap of their screen:

  • Three-quarters of customers surveyed are drawn to the fast, inexpensive, and easy-to-use products and experiences that fintechs make available
  • Half of respondents say their current banking relationships are unrewarding and they don’t feel emotionally connected to the bank, with 52% say banking is not “fun”.

The gap between what customers expect and what banks can deliver poses a significant threat to relevance and long-term growth. Nevertheless, the report concludes: “It’s a competition the banks could lose, but they don’t have to.”

What are the obstacles ? Bank executives have identified their aging IT infrastructure as the biggest obstacle.

  • 95% said legacy systems and core banking modules were outdated hinder efforts to optimize data-centric and customer-centric growth strategies.
  • 80% agreed that underdeveloped data capabilities impede improvements in customer lifecycle processes.
  • 82% had difficulty identifying new customer segments.
  • 55% struggled to provide seamless onboarding experiences.

Another problem was manage a lot of customer data they already have.

  • 70% of banking executives feel lacked sufficient data analysis capabilities to gather useful information.
  • 80% were concerned about data reliability.
  • 70% said they lack the resources to process and analyze the data.
  • 43% said siled data was a problem.

How banks can compete: They’ve earned customer trust, collected data, and created multiple distribution channels, and they need those strengths to compete in this hyper-personalized environment.

But to win and avoid losing customer value to more nimble fintechs and neobanks, they will have to rework their business models and foster greater customer engagement.

  • The report gives the example of CIBC, which increased its client acquisition rates by 65% in three main business areas, primarily through customization efforts.

Banks must also tackle what Nilesh Vaidya, Global Head of Industry, Retail Banking and Wealth Management at Capgemini Financial Services, called “the disparity and inconsistency between a customer’s digital and physical banking experiences.

  • About 80% of customers and executives agreed that websites were an important channel.
  • 77% of consumers cited mobile apps, compared to 91% of executives.
  • In the widest variation, 75% of consumers value branches, compared to 58% of executives.

Ecosystem platforms appear as a promising way to add capacity or increase revenue, but the report found that banks are “still learning the ins and outs of platform innovation”.

  • 78% fear cannibalizing products through ecosystem partners.
  • 72% are concerned about preventing brand dilution.
  • 53% are concerned about maintaining ecosystem exclusivity for partners.

What does that mean: “The bank is at a crossroads” the report concludes, meaning that incumbent banks are now trying to catch up and interpret their data. Insights from this data will help them create experiences that can attract and retain customers, deepen relationships, and drive growth.

Banks still have advantages, including customer confidence, regulatory imprimatur and product expertise. But the report urges incumbents to look at successful fintechs to learn lessons about how to capture value, and offers these examples:

  • Start a value loop by creating an attractive free or low-cost product. From there, activate and grow those relationships, leveraging data, cloud infrastructure, modern core banking systems, and API networks to create personalized experiences and support customers on their ecosystem journeys. For example, Nubank’s The first product was a no-fee, easy-to-manage credit card with unlimited free transfers and payments.
  • Promote engagement by curating targeted content built on a data-driven understanding of the customer’s lifestyle and lifetime value – for example, retirement planning blog links for those thinking about life after work.
  • Constantly improve the experience with agile process improvements to keep it fresh and relevant to customers. For example, Carillon uses a predictive personalization system that provides customers with content tailored to their individual financial interests.

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