A year on from our first Customer Banking Survey, nothing much has changed – but it really should have.
There is still profit to be made from implementing technology that enables speed alongside new areas to tap in the areas of ESG and open banking.
Millennials represent a risk and an opportunity for banks, with intent to switch high and their needs being underestimated.
In 2021 we wrote about PwC Australia’s first annual Customer Banking Survey. After months in the midst of a pandemic, the results indicated that lockdowns had accelerated digital adoption and customers wanted greater remote access. This was particularly true for the younger cohorts, who indicated that mobile and web experiences needed to be quick, easy and efficient. Technology, and the threat posed from outside tech company players, digital and neobanks were on customer radars.
A year later, what’s changed? On the whole, of the nearly 1000 Australian banking customers surveyed in January 2022, sentiment is remarkably similar to last year. On the one hand, this could be viewed positively – tech has not taken over from traditional financial institutions, and customer loyalty is still high. The top value drivers continue to be low fees (important to 88 percent of customers), competitive interest rates (82 percent), speed and efficiency of transactions (87 percent).
On the other hand, however, customer expectations haven't changed when it comes to the digital experiences they want from banks (and feel is lacking). The gap that we saw last year remains. Viewed in this light, 2021 can be seen as a year of lost potential.
Banks are always looking for growth, yet an entire year has gone by where, according to customers, nothing much has changed. This is despite our research showing at least three critical tipping points that, if purposefully toppled, could give banks a massive first-mover advantage.
Despite the frenzy around ESG issues in the last year, customers remain relatively unaware of its meaning and implications in banking. Seventy-three percent of those surveyed indicated that they had never heard of the term ‘environmental, social and governance,’ or ESG – a finding that may surprise given its spotlight in the corporate world. While 15 percent had heard of the term, they weren’t sure what it meant. On further questioning, the understanding around specific environmental and social issues tended to be very narrow, such as being limited to climate change issues.
So where’s the opportunity? Results indicated that 12 percent had some or extensive knowledge of ESG, in particular this was made up of younger, male, high-income earners. Critically, amongst this group, many said that they would make purchasing decisions to support organisations who supported ESG.
Two-thirds, a full 66 percent of those with some ESG knowledge, agreed that they valued organisations who were active on ESG issues – compared to just 38 percent of other respondents when given a description of ESG. Over half said that they would switch their bank or other service provider for one that actively supported ESG, and around the same said they would pay more for the same product or service with a brand that had transparency around ESG activities.
This indicates two potential actions for banks. One, to provide ESG products, services and transparency over initiatives to win over (or retain) those with ESG knowledge and two, to increase the education of all customers around ESG – by avoiding corporate jargon and outlining the important issues behind the terminology – to provide further market differentiation and demand.
While we know that customers rate the value of a good deal highly, what if they could get that good deal (which is increasingly an issue of table stakes rather than a differentiator in the Australian market) and support ESG issues? Consumers increasingly want businesses to invest in making sustainable improvements to the environment and society and are prepared to reward (or penalise) brands accordingly. The COVID-19 pandemic shifted consumer behaviour, and the number who value it, towards conscientious products and brands – and many are willing to pay for it
Similar to ESG issues, another tipping point exists in the lack of customer knowledge around open banking. Despite the regime being a strong focus of government and institutions around the world, only 42 percent of respondents had even heard of open banking and what it means for them. A further 31 percent knew of it, but didn’t use it. To add salt to the ‘could have done’ wound, these results are practically identical to the year before, representing a huge lost opportunity for awareness.
Again, those who had knowledge and either tried or regularly used open banking initiatives were more likely to be high income earners. Males, aged 18-44 were the most likely, whereas females, low income respondents and those over 55 years of age were less likely to have heard of the term.
While trust and data security remain legitimate concerns for customers (that should also be addressed in awareness education) survey respondents who knew of open banking (but didn’t use it) indicated they did not do so because they lacked an understanding of the benefits.
Regulation aside, open banking and the data behind it is meant to spur innovation and give customers more convenience, choice and ease when it comes to their banking needs. Incumbents who provide education of its benefits, access to ecosystems and open banking products of their own, could provide their customers with far greater added value than those that don’t, alongside superior experiences. But not if those customers don’t know what it is.
Open banking innovation, as opposed to its regulation, will be driven by consumer demand. The institutions that educate their customers and provide them with the very best of what open banking offers will be well positioned to create demand.
One group that keeps popping up in various areas of this research is one that seems to be continually underestimated: millennials. Generation Alpha is already being marketed to, and Generation Z are no longer the new-comers on the block. But millennials, who are turning 40 at their top end and at their youngest entering their thirties, are in prime banking heartland – making choices around investments, purchasing houses and starting to think about retirement needs.
Yet as the above two tipping points show, the risk they pose when it comes to digital expectation gaps has gone unaddressed. While other generations had their digital experiences accelerated due to the COVID-19 pandemic, millennials were already there.
As a group, they are more open to neobanks, digital banks, open banking and aware of ESG. They are more likely to use digital wallets, buy now, pay later (BNPL) services and PayID. They are more open to adopting new services and products with tech companies – many of which they have grown up with, are loyal to, and consider as established. As we reported last year, younger cohorts express higher trust than others in technology companies and BNPL brands – that hasn’t changed. What has, is that this age group is now a year older, becoming business leaders in their world and are more enmeshed in complex financial situations that are often analogue, physical in nature and cumbersome.
Customers who believe their banks have exceeded their expectations are ones where specific personal needs have been met and support was offered when it was needed. As millennials navigate the waters of their financial futures, this will be a crucial area to get right. Digital experience – and more importantly, the ease it should bring – matters to this cohort. Forty-four percent of millennials believe easy mobile and web experiences will only become more important in the next five years, as will speed and efficiency (42 percent) and having the most up-to-date technology (46%). They also believe, by 14 points more than the average (48 percent compared to 34 percent), that people won’t be needed for great customer experience as technology advances.
Millennials continue to be the most likely to switch their primary bank (16 percent) alongside those who bank with digital banks (34 percent) and they place a greater importance than other customers (64 percent vs 58 percent) on choosing financial products and services with organisations known for their leading technology. The tipping point for this group will be what they already expect – seamless, easy, digital, value-adding experiences, and nothing less. Especially as their needs become more complex.
The results of this year’s survey show that there is a lot of value being left on the table when it comes to growth and innovation in banking. For the brave, it is time to create the change you want to see. By understanding where opportunities for new customer demand exist – such as in the spheres of open banking and ESG – and understanding which customers are primed for change, there are at least three tipping points wobbling on the precipice. Those who knock them over could be in for a whole new world of opportunity.
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