How are banks pacing for the new wave in banking?

Banks must evaluate and address the evolving needs of the consumers and maintain their trust in the banking system.

Banking as an industry was already undergoing significant changes on multiple fronts (including a high degree of self-disruption), but COVID-19 has accelerated a wave of trends demanding an immediate addressal. In that sense, it brought the future of banking into much clearer and instant focus. 

EY India rolled out a survey earlier this year to get a view on the extent of these market shifts and suggests how financial institutions can ride the new wave of banking through this report titled: Shifting growth gears: pacing for the new wave in banking.

Evolving needs of next gen consumer

The advent of the pandemic and the rise of consumerism has brought about a paradigm shift and a renewed focus on convenience, especially for GenZ, making the banking industry steadfast into gearing to serve them in the most appropriate manner. 

Gen Z rates convenience higher in their overall banking and shopping experience. While paying monthly bills, they want everything one click away. They want to pay EMIs, credit card bills, electricity bills, groceries, etc., in one app and on the same screen.  

The next decade will be shaped by the maturation of GenZ, the largest generational cohort in history.

Digitized neo-banks are here to stay

Over the past few years, the global neo-banking industry has witnessed an exponential growth in terms of customer base and the size of the overall market, despite regulatory hurdles. With endless technological possibilities and digital transformation in banking, neo-banks can elevate customer experience by bridging the gaps in traditional banking and simplifying the age-long complex banking processes.  

Further, their technology-enabled solutions and offerings stand them an opportunity to be the frontrunner in the domain, capture market share, and set themselves on the path to profitability.

By providing seamless integration and easy access, neo-banks bridge the gap between the services that traditional banks offer and the evolving expectations of customers in the digital age. The induced need for personalization and convenience has led to the growing popularity of neo-banks. Commonly coined as ‘challenger banks’, their niche lies in offering customers a seamless experience elevated via lucrative offers, exciting rewards and cashback. Their exponential growth relies on how empowered they make the consumers feel through superior DIY journeys, better customer experience and supported ecosystem offerings personalized to a consumer. 

The traditional bank and neo-bank partnerships typically involve contractual aspects of revenue sharing, activity distribution, and customer ownership arrangement. Neo-banking incumbents need to rise above the ambiguity by finding suitable banking partners to hold the ground. For other major Indian banks, on the other hand, the need to get their API stack in place may act as a critical enabler to fructify these partnerships.

Neo-banks have understood the early mover’s advantage of utilizing the power of data and analytics and marrying it with the evolving needs of the customers to put forth offerings that make them lead the market dynamics to the T.

In India, neo-banks or FinTech companies struggle, owing to a lack of banking license, thereby increasing their dependence on banking partners to provide licensed services. 

Traditional banks need to invest more in enabling technologies:  

• To build a DIY journey for various offerings
• To curate customer experience through simple and intuitive UI/UX and
• Develop an ecosystem to cater to non-financial needs of the consumer

Bricks to clicks, building a sustainable bank in the digital era

Neo-banks are gaining popularity with consumers majorly because of the superior personalization capabilities and better products offerings. But trust remains a crucial front in the battle for relationship primacy, especially since consumers show a greater willingness to maintain multiple financial relationships.

Basis our global survey findings on trust in banking parameters, traditional banks still operate from a position of strength. Consumers like to have high degrees of trust in the players they choose for their PFRs. 

In general, the data demonstrates that most consumers completely trust their PFRs, ranging from 72% of the UK consumers to 92% of the Chinese consumers. While the global average of all markets is 82%, in India, this number is ~90%.

Hence, it is not surprising that, while neo-banks are quite ahead in their digital capabilities; they lack a certain credibility in the market. This is because the trust of the consumers lies with more established players.

According to the EY report, Indian customer values trust as utmost in their primary financial relationship, giving traditional banks a position of pride despite multiple shortcomings as against the up-to-the-minute counterparts in neo-banks. On the other hand, while these neo-banks have impressive digital capabilities, they lack with credibility in the domestic market. A collaborative approach may be the best bet in overcoming the respective shortcomings of both traditional and neo-banks, and in bringing innovation into digital banking. 

Need for a robust customer service strategy

Market competition, cost pressures, and changing customer expectations create an imperative for banks to transform their customer service operations. With the number of financial relationships per consumer growing at a steady pace, banks need to evaluate their end game to engage consumers uniquely at each touch point. It is pivotal to create a sound ecosystem of offerings focused on customer centricity through enhanced customer service, hyper personalized offerings, super apps, etc. 

Data-driven personalization will carve the way forward

Digital transformation in banking is changing financial relationships, but clients’ willingness to share their data holds the key to ensuring personalization.

Here are the critical insights to consider:

1. Convenience, cashback and rewards drive GenZ
2. Globally, neo-banks are encashing the same and gaining market share rapidly
3. Trust continues to be the dominating factor, driving financial relationships
4. Among the surveyed group, 90% demonstrated trust in their primary financial relationship with traditional banks
5. Robust customer service strategy, super apps, data-driven personalization, and embedded finance are driving an integrated ecosystem powering digital transformation
6. Investments in metaverse banking are gaining ground to drive traction with GenZ