Person taking a photo of a check for deposit

Challenger vs. Traditional: The Battle Ground of Banks


Tiffany Matum has followed many Americans when it comes to banking – by adding an app to their financial repertoire. Customers like Tiffany are at least partially banking on their mobile phones, a trend that has several impact points on the industry as a whole.

“I use the app primarily, unless I’m balancing my checkbook – then I use the website,” says Maytum, an office administrator in Denver. “But the mobile app I used to transfer and deposit checks. I’m old-school and still balance weekly. I like to see where I’m spending my money.”

A recent Global Web Index report examined mobile banking and user trends and behavior. It revealed that 6 out of 10 internet banking customers use mobile devices to access accounts, a number on the rise. As a result, investment in new technology to enhance the online experience has become a priority for banks.

The survey, of banking customers 16-64 globally, provided indicators of trends in the banking industry, including impacts on traditional and digital banks. GWI is a market research SaaS company that provides audience insight to industries.

Many modern bankers are mobile-first users, and their financial behavior reflects that. They are 20% more likely to transfer money by mobile than web- or brick-and-mortar- first users. 59% of mobile users transfer money through apps, and 42% track their monthly spending that way.

How, then, can banks provide the most mobile-friendly tools in a crowded marketplace?

What bank customers want

As with other mobile enterprises, customers want banks to offer personalized products. Artificial intelligence and open banking strategies make the most impact here. Consumer data helps develop tailored financial solutions: 1 in 4 users want the feel of a one-on-one relationship with their financial institution this way.

What once was a practical partnership has evolved into one in which the user expects the design and delivery of financial services.

Challenger banks – smaller, digital versions of traditional banks – are still the minority in the industry, despite growing numbers to join them. Users often track and enact everyday spending with these accounts, rather than manage investments and salaries.

One result of this shift: Traditional banks have less valuable spending data than before to sell and use for their own purposes.

Public perception of banks’ response to the coronavirus outbreak is positive. Although 70% of users in 17 markets give banks favorable ratings so far, that positive sentiment varies by country. And it has changed as the lockdown has progressed. Although perception has remained largely positive, some markets have seen sharp declines. At the forefront of concerns: A call for policy change to ease current financial burdens, and reassurance of asset safety.

The faces of modern banking

Since 2017, many bank customers, like Maytum, transact with a hybrid of mobile and PC. Those numbers have remained consistent (72-73%). In that time period, mobile users increased steadily (52-58%) while PC and laptop users saw a sharper decline (41-33%).

Russ Watkins is a creative manager in Orlando, Fla. He’s a mobile bank user who says a “reliable functionality” is key to a good experience.

“The convenience of mobile banking should be just that – convenient,” Watkins says.

Convenience plays a key role in the rise of digital banking. Along with low-cost transfers and no foreign transaction fees, it’s a key plus, especially for digital natives who might not even have stepped foot in a brick-and-mortar bank.

Location is another factor. Most internet users in Asia-Pacific and Latin America do mobile banking. In Europe and the U.S., PC banking stands out. Online demographics in Asia-Pacific and Latin America skew slightly younger, which could explain that difference.

Financial attitudes and habits

Before the coronavirus outbreak, just less than 6 in 10 modern bankers forecast an improvement in their finances in the next 6 months. Almost half said the country would also see a prosperous uptick. The most positive of that group – younger and higher-earning people. The pandemic has lowered that optimism.

38% of that same demographic feel COVID-19-related quarantine will dramatically impact their personal finances. That’s way more positive than the national or global economy, of which 80% predict a dramatic impact personally, 89% on a wider scale.

Some interesting variations have emerged.

Those in the top 25% of income earners had the most negative sentiment about the world economy taking a hit (90%) but had a far lesser concern about their own finances (36%). Those in the bottom 25% of income earners were far more likely to have concerns about their household finances post-coronavirus.

Laura Palker is CEO of Trade Show Solutions Center in Melville, N.Y. She says the pandemic will have a big impact on her finances but isn’t convinced it will be a bad one.

“When one door closes another one opens,” Palker said. “I am really seeing the quote at work, in every seed of adversity lies and even greater seed of opportunity become a reality. I do believe that nationally we will be okay, there is little that can compare to American entrepreneurial spirit and that spirit will allow us to get up, innovate and heal. Globally, I think other nations have been a part of our systems and learned from us.”

Such optimism is more common among those who show interest in financial products banks offer, such as savings and pension accounts, stocks and shares, and mutual or managed investment funds.

It’s a proactive stance that banks should focus on to provide the best options for their customers. 71% of younger online bankers are have cash, savings, or pension plans.

Technology’s role in modern banking

Margaret des Ruisseaux is a membership director in Kentucky. Count her among those reluctant to turn to online banking, either with a digital bank or a traditional one with an app. Her trepidation comes from issues with mobile phone hacks and viruses, not necessarily banks.

“It is fear-based,” Russeaux says. “That’s why I switched from Android to Apple. I will however, under normal circumstances, pay everyone online which basically makes no sense.”

It’s an interesting quandary to be in – distrustful of the technology yet also drawn to use it. Nearly half of modern bankers own a smart TV. This suggests a penchant for modern bankers to want new technology and adopt such products quicker than those who don’t. And although virtual reality technology isn’t taking off at rocket speed in a broad sense, the idea behind it is fueling ways to rethink the banking sector.

Artificial intelligence-powered avatars could guide customers’ financial matters through virtual or hybrid branches. Heavy hitters such as Apple, Google, and Samsung would like a bigger part in the finance-service sector – which plays right into this demographic.

Google even has a partnership with Citibank and Stanford Federal Credit Union to create checking accounts connected to Google Pay. Such convenience might turn hybrid consumers to all or nearly-all mobile. Like Maytum, Watkins splits online banking between mobile and laptop.

“I check balances daily, and transfer funds between accounts as needed,” he said. “I occasionally deposit checks via mobile, but not very often. That’s about the extent of it. I haven’t had any issue with my current provider, and I’m happy with the services they provide.”

More banking and fintech collaboration might be just what customers like Watkins need. Traditional banks have the same opportunity to incorporate these partnerships as digital banks, effectively leveling the playing field. Some parts of the world are far more comfortable conducting their finances on an app. In China, WeChat, the digital payment giant, is used by 84% of modern bankers. In the U.S. and U.K., only 22% of internet users would feel comfortable transferring money through such an app. Following those trends, WhatsApp Pay has a restricted launch – to India, not nations in the west.

Western markets are leery of “buy” buttons in social media, not knowing where their funds will actually end up.

Perhaps there’s hope, though, in western nations.

Trish Mullin is a marketing director in Central New York. A mobile-only banker because her bank is located in another state, she feels data is safe in online banking as it is in a physical bank. “To be honest, if someone wanted to get banking info, they could get it other ways,” Mullin reasons.

Engagement with banks

Although digital banking is on the rise, challenger banks aren’t positioned to overtake the traditional bank just yet.

A separate GWI survey shows challenger banks still in the minority in the space. Even those who use digital banks extensively are often reluctant to put all their eggs in the challenger basket. 57% of modern bankers still get their pay and manage investments in traditional banks.

Just 31% do so in digital banks.

And although the threat to traditional banks doesn’t loom large, digital banks are still hitting the big cats where it hurts: transaction data. With fewer transactions occurring with big banks, those entities don’t have the data to scour or sell for their own purposes. The tug of war for customers continues, with big banks ranking low on metrics more agile challenger banks get better reviews in. And the opposite is also true.

Bank customers in the U.S. and U.K. said banking fees (43%) was the main frustration of traditional banks. The time-consuming nature of transactions (31%) and poor customer service (18%) were also points of contention.

Mullin, who banks by mobile with a brick-and-mortar not in her current location, says she needs endorsements from her accountant, lawyer, and trusted advisors for her finances, and trusts the traditional bank to accommodate that.

“Having personal banking relationships are extremely important to me,” she says. Many agree with her. Detractors of digital banks say they want more personal interactions in banking matters (31%). 22% aren’t comfortable with their money’s security, and 20% cite lack of easy access to credit as frustrations for digital banks.

To improve on convenience, traditional banks will have to implement some of the properties popular in digital banking – monetary rewards for sticking to a budget, 24/7 service with chatbots, and round-up saving programs – to draw numbers from challenger banks.

Traditional bank customers aren’t as interested necessarily in innovation, but digital bankers not only want the latest features, they also want their banks to be smart and bold, too. For both, bank leaders are simply trying to determine what’s possible within their customer base and beyond.

COVID-19: Attitudes to banks

The public is largely happy with how banks have responded to the pandemic. 70% of internet users in 17 markets gave the industry a thumbs up. Sentiments are changing in different parts of the world, however.

British banks have helped consumers by giving breaks on mortgage payments, freezing overdraft fees, and granting access to fixed savings to those who need them. Attitudes toward banks is very different in places like Spain, where bankers fear taxes under a new government could drive up the demand and price of credit. Some are even moving savings to other countries in response.

For traditional and challenger banks alike, a sense of quick action to ease financial burdens, at least temporarily, and reassurance of asset safety go a long way.

Businesses have a slightly higher sense of appreciation for banks during the pandemic.

Midmarket businesses, at first, were especially pleased. They’re also less reliant on banks than their smaller or larger counterparts. Assistance for midmarket businesses likely represented a needed boost, not a make-or-break gesture, as it likely was for SMEs. As social restrictions dragged on, however, optimism among these midmarket businesses began to wane. Numbers point to this shift as a result of midmarket businesses beginning to feel the crunch of the economy – but being unsure assistance would come in time to save them.

As news pivots daily across the globe, consumer sentiment also is subject to shifts. Banks, of all origins, lending power, and platforms, must rely on that sentiment to inform them of shifts they should make in their operations, too.

“Each country has taken what serves them and added their own twist,” Palker said. “We can only hope that each country will rebound and heal.”

Source: Global Web Index

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