For decades, traditional banks have played primary roles in consumers’ financial lives. Today, even the biggest and best-known banks find themselves losing ground to much smaller competitors that have developed easy, elegant solutions for simple transactions that once formed the heart of consumer banking relationships.
The 2021 EY Global NextWave Consumer Banking Survey demonstrates just how quickly consumers have engaged with these “neobanks” and fintechs. Incumbents still lead in maintaining primary financial relationships with consumers, but nontraditional players are gaining ground at a pace that should concern senior banking executives. EY teams surveyed 12,000 consumers in 14 international markets and found that 27% have a primary relationship with these new players. Those numbers are notably higher among millennial and Gen Z consumers.
Neobanks have gained traction by building trust through extremely intuitive customer experiences, extensive personalization, and focusing on specific customer needs. Based on the survey findings, it is clear that banks must mobilize urgently on all three fronts if they are to maintain their dominance in consumer relationships.
Embrace the ecosystem revolution
While most banks understand the huge impact of ecosystems, few have devised full strategies to monetize, operate, and continuously innovate with ecosystem business models. According to the survey, consumers in key markets expressed a strong preference for traditional banks to lead the development of ecosystems.
Incumbent banks have a trust advantage when it comes to consumer data protection. But winning with ecosystems requires reorienting the value proposition around connected experiences, innovating new offerings, and building and scaling new platform capabilities. Banks that get it right can become akin to “personal financial operating systems” for consumers, meeting core needs, enabling lifestyle transactions, and supporting financial wellness within an integrated and fluid experience.
Build trust at every touchpoint
The 2021 survey shows how perceptions of trust have shifted to include ethical, functional, and personal components. Trust matters competitively because consumers maintain an average of three to four primary financial relationships (PFRs). Incumbent banks are still operating from a position of strength because a large majority of consumers still trust them as their PFRs. They must continue to build on that legacy as the competitive field tilts to areas where neobanks have the advantage, such as payments.
Providing more value back in exchange for consumer data is one crucial step. Banks must build consumer confidence that they can be trusted with personal data as these capabilities are necessary for advanced personalization. Such personalization is critical considering that 81% of Gen Z consumers say that it can deepen financial services relationships.
The battle for trust is just starting to heat up. Emerging U.K. regulation and new data privacy laws in California will require more consumer control over—and transparency around—personal and transaction data. Banks should play offense here, proactively preparing to drive growth through trust, rather than simply ticking the compliance box.
Modernize the business around customer centricity
In the past decade, banks made great strides. They adopted agile ways of working, built more detailed customer journeys, and digitized their operations to improve efficiency. These necessary steps have enhanced how banks operate and serve customers.
The next wave of industry transformation will require bolder leadership and willingness to rethink the norms of the past to win the battle for the future. What’s missing in most organizations is a strategic thread linking client experience, employee experience, and front-to-back modernization efforts within an integrated transformation approach. Banks still struggle to execute change on this scale and to attract the engineering and data talent required to thrive in the future.
The next decade of transformation will not resemble the last decade of evolution. With the speed of innovation accelerating every day, legacy mindsets (those focused on what can’t be done because of constraints) must be replaced with bolder thinking about what must be done to win in a new and compliant manner. This shift may seem evolutionary, but in practice, it will be revolutionary. Fintechs and neobanks are already pioneering the future of customer value leadership and won’t wait for trusted competitors to catch up. But incumbent banks still have advantages that would enable them to win, if they so choose.
Nikhil Lele is EY’s Americas financial services digital and customer growth leader. The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
More must-read commentary published by Fortune:
- We can’t walk blindly into the metaverse
- Millennials and Gen Z are a growing force in investing. The market needs to catch up
- Don’t let them tell you inflation is good for the poor. It’s not
- Rise of the (fast food) robots: How labor shortages are accelerating automation
- Why the U.K. doesn’t have its own Oprah
Subscribe to Fortune Daily to get essential business stories delivered straight to your inbox each morning.
