Traditional banks are losing customers to nonbank competitors because they still lag the digital experience offered by leading fintechs, established specialist companies and major technology companies. In order to stay in the game, retail banks must improve their digital channels’ interface and functionality, according to a research by Bain & Company.

In a report titled As Retail Banks Leaks Value, Here’s How to Stop it, the consulting firm shares findings from its tenth annual study on retail banking and delves into how retail banks are leaking customer business to competitors.

Customers prefer digital

The study, which surveyed more than 131,000 consumers in 22 countries, found that digital channels are the preferred means of purchasing banking products, with the share of purchases via such channels rising by 2% to 16% points from 2017, depending on country. Total purchases via digital channels were between 18% and 60% by country, with the UK leading.

According to the research, customers in many countries, but most particularly those in emerging markets, are willing to try banking with a tech company such as Facebook or Google. Nearly 90% of survey respondents from China, and about 80% in Colombia and Brazil, said they would be willing to bank with an established tech company.

The study also found that certain fintechs are becoming mainstream in developed markets. In the last 12 months, around 70% of survey respondents from Sweden have used Klarna, while in Singapore, 40% of respondents have used GrabPay. In Australia, 18% of respondents and 31% of younger ones have used Afterpay in the last 12 months.

Although customers are increasingly preferring a digital-only experience for purchases and research, the study found that most prefer human interaction for larger purchases, such as applying for a mortgage or opening a general investment account.

Recommendations

In this changing landscape, the report advises banks to formulate digital strategies that focus on eliminating the pain points that frustrate customers and work to drive certain purchasers towards digital sales, while maintaining some human interactions for key moments.

Ultimately, banks will need to develop a broader ecosystem of partners and suppliers as the survey results show great interest in a one-stop shop for personal credit, managing personal finance and running a small business.

In this regard, the report notes that several banks have made great progress. In the UK, NatWest launched Home Agent, a digital platform that connect first-time home buyers with partners offering varied services including valuation, utility deals, moving services, cleaning services and general contracting. In the US, Capital One offers online vehicle listings and tools to immediately prequalify car buyers for financing, and in Singapore, DBS Bank runs the largest direct seller-to-buyer car marketplace in the country.

In addition to meeting customers’ needs, banks must leverage digital technologies to improve backstage operations and cut costs. The Royal Bank of Scotland, for example, has developed a digital mortgage product which has allowed it to eliminate 66 pages of paperwork and reduce the time to close from 23 days to 11 days.

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