Editor’s Note: While industry thought leaders discuss the battle between fintech and traditional banking, customers are focused on something else entirely—their experiences regardless of which bank they work with. For many traditional banks, jumping into the digital revolution may seem like a fight already lost, but ultimately even small steps toward adopting digital services will make a big impression on customers.
If you’re hoping to stay competitive with new banks, start by working with a partner who can provide you with a full suite of solutions and support.
There’s been a lot of talk about whether traditional banks can survive the digital revolution. Industry experts have mused about the fate of brick-and-mortar banks as the pandemic fueled a shift toward digital options, but is the assessment that traditional banks are destined to disappear a fair one? Not in my book.
While the popularity of traditional banks is certainly waning among younger generations, 65% of all consumers still use traditional banks as their primary provider, and we don’t anticipate a mass exodus any time soon. Even so, the battle traditional banks face to stay on top may not be an easy one. Galileo recently conducted a comprehensive survey to get at the heart of consumer preferences and sentiments about their banking habits, and the findings were enlightening.
Security, privacy, convenience and fees drive choices
Most consumers choose their financial services providers based on four major factors: security, privacy, fees and convenience. That’s no surprise—and the latter two, in particular, are driving the significant shift to digital banking.
Users opt for digital-only banks because their offerings are straightforward, convenient, simple and low-cost. In fact, 61% of respondents expressed interest in shifting their primary account to digital-only providers.
Customers have accounts with 2.5 providers, on average, including one that is digital.
Furthermore, 77% of American adults use traditional banks for their primary or secondary accounts?but they keep 43% of their funds elsewhere. Unsurprisingly, younger consumers keep a higher percentage of their funds in nontraditional accounts. We expect this proportion to increase as millennials and Gen Z consumers increase their spending power.
Users across demographics view traditional accounts, digital-only accounts, prepaid cards and standalone digital accounts as viable places to keep funds. They use those accounts somewhat interchangeably to do anything from shopping online and withdrawing cash to paying bills and getting paid. Some consumers even use standalone digital options as savings accounts. Consumers also create spending “envelopes” for different purposes across account types if their banks don’t offer built-in bucketing options.
Can traditional banks keep up?
Although many consumers report thinking about switching to digital-only banks, the great shift isn’t inevitable. In fact, only 18% decided to make the switch in 2020?despite the barriers to accessing physical branches in the COVID-19 pandemic era. That means there is an opportunity for traditional providers to hold on to their customers if they prioritize digital growth.
The biggest battle traditional banks face is customer satisfaction. Digital-only and standalone digital options have sky-high satisfaction scores (around 80%) because they often start by doing one thing and doing it very well. These providers slowly expand their offerings over time, allowing users already familiar with the platform to adopt the features they want to use.
Traditional banks have a satisfaction rate of just 66%, which could be because customers expect more from them. Traditional providers may face greater barriers to satisfaction because consumers are judging them on a suite of services—like mortgages, loans and investment options—rather than their success in providing a checking account.
If banks can offer seamless, digital experiences and support across their services, customers are likely to stick around. People who use traditional banks still trust them. That’s a huge advantage. Of course, the additional trust traditional banks now enjoy may not last as consumers become more comfortable with digital options. Traditional banks need to leverage that trust and invest in more satisfying digital experiences sooner rather than later.
There is no reason to think that conventional banks can’t tailor their offerings to match those of their digital-only counterparts—so long as they are willing to upgrade their legacy technology. Banks must overhaul their core technology by investing in an API-based tech stack or partner with a technology provider that can deliver on the flexible digital options consumers crave.
It’s not digital versus traditional
We in the industry might think about it as “digital” versus “traditional,” but the reality is that consumers don’t. They think about what they’re getting. It’s the outcome they’re looking for, not the classification. With that in mind, banks have little to worry about so long as they are willing to shirk “tradition” in the name of progress. That means prioritizing customer convenience and choice.
If our research revealed anything, it’s that consumers will choose their personal path of least resistance at the virtual or physical checkout line. People are using more financial tools than ever before, and how they use them should guide traditional banks as they improve their digital offerings.
With the right investments and partnerships, any institution can execute on digital. Once financial institutions clear the technology hurdle, they can focus on offering the right combination of value propositions by listening to customers and iterating quickly to drive satisfaction.
Provided traditional banks can keep up with changing preferences—and there is no reason to think they can’t—banking as we know it isn’t going away any time soon.