The digital battleground for the future of banking

Key takeaways

  • The COVID-19 pandemic has accelerated digital adoption in consumer banking.
  • Customers want remote access to their banks, but expect their experiences to be seamless — and human.
  • Technology (and tech companies) may pose the biggest threat to the high loyalty banks have built up with their customers.

Over the last year, the COVID-19 pandemic has brought unprecedented challenges to people’s daily ‘normal’. Customers embraced online grocery shopping and over-the-top entertainment as their ability to roam freely in the world was curtailed. Virtual and telehealth use skyrocketed and is expected to remain high post-vaccinations. Trust in government in Australia is higher than it’s been in years. 

But what about banking? We surveyed over 500 Australian individuals in February 2021 to find out how the COVID-19 pandemic had affected their banking experience. What we found is that customer expectations over where and how they bank are changing; while COVID-19 has fostered customer loyalty, the pandemic has accelerated digital adoption rates. As a result, technology is becoming key to keeping customers satisfied. 

Personal interactions go digital

The use of digital banking has risen with the pandemic, with close to a third of our survey respondents saying that they were using mobile banking apps more than before COVID-19 and a similar number using digital payment platforms, to a greater extent. Twenty-six percent are using recent-entrant ‘buy now, pay later’ services more than they did before. And even usage of ‘old school’ technology, such as email and chat via bank websites, is up for 21 percent.

Advances in banking technology, much like in other industries, have elevated customer expectations around fast and seamless experiences. Within the context of open banking, there is an increasing importance on the advances technology is bringing to the banking customer, such as greater control of personal finances. For younger cohorts in particular, this aligns with a desire for easy mobile and web experiences, as well as speed and efficiency in transactions. Additionally, frustration is quick to escalate when an expectation divide leads to bumps in the road — and bad experiences aren’t easily forgotten.

The human element

The survey results also indicate, however, that a fine balance is needed where human and technology intersect. While customers were clear that they wanted digital avenues to banking, the sentiment did not necessarily translate to wanting less human interaction. In fact, 72 percent of those surveyed said that they will always want to interact with a real person for at least some of their banking needs. Ultimately, customers say they want clear and easy interactions, competitive pricing (enabled by end-to-end tech investment) but someone to talk to when things get hard, such as in complex problem resolution or understanding their financial position and future goals).

The majority of consumers surveyed say that they prefer to have remote methods of interaction — for solving both simple and more complicated tasks — such as phone, text, apps or email. Which is to say, they are less likely to want to go into a branch.* But these experiences need to be seamlessly connected — 72 percent say it’s important for companies to connect their digital and in-person experiences, but only 60 percent think they’re doing it well.**

An emerging battleground

Almost one in five feel more loyal to their bank than they did a year ago, so it appears that the uncertainty wrought by COVID-19 has had the effect of increasing people’s preference towards the stability of their financial institution of choice. And while one in three intend to explore new products and services in the next 12 months, they are happy to do that within their current bank, with switching intentions remaining low. 

However, the data shows that this could change — nearly half of those aged 35-44 years old intend to explore new products and services in the coming year, and their inclination to switch brands is double that of the average customer.

So what will keep this highly-sought after group loyal? Increasingly, the answer revolves around technology. Sixty-nine percent of surveyed respondents say that the most up to date technology is an important factor in choosing a bank or financial product. Forty-five percent say that this will only become more important — flagging a potential battleground for banks when it comes to the new possibilities brought by technology and the speed it will enable.

Technology, and the productivity it can bring, is at the core of the challenge banks face. It is not simply about speed to market or new products, but increasingly about the delivery of service across all customer touchpoints. The imperative to automate has been known for some time in banking, but the heat is about to be turned up. In an environment of low interest rates and scrutiny on fees, productivity and scale are becoming more important. And technology poses a threat in another way — as new entrants in the battle altogether. 

In tech we trust?

There is a trust barrier that new entrants need to overcome to compete in the Australian banking industry. Three-quarters of respondents trust the Big Four to keep their money safe, with 69 percent extending this trust to their personal data. For digital or neobanks, only 40 percent have faith in the safety of their money. Slightly more respondents, at 45 percent, would trust a tech company with their money. 

While comparatively, trust in handling money is far higher for established banks, the potential for disruption is great, particularly among younger customers. Those aged 25-44 say they are open to adopting new products and services from technology companies, and for technology companies, brand awareness and usage is high.

Eighty-nine percent of respondents to our banking survey said that they use Google, 77 percent use Facebook and 85 percent use Paypal. Microsoft, Samsung and Apple were each used by over 50 percent of respondents. The reach of these companies within those surveyed is significant, as when asked whether they would trust the same companies to keep their money safe, trust was high. 

Seventy-eight percent said that they trusted PayPal to keep their money safe with 51 percent agreeing for Microsoft, Google and Samsung and 48 percent for Apple. When broken down by age, younger cohorts expressed even higher trust in these companies. For buy now, pay later services, fifty-seven percent of 18-34 year olds say they trust Afterpay and 52 percent trust Zip. 

Given the openness in general for new products and services, such numbers should cause existing financial institutions to sit up and take note. If tech companies can overcome the trust barrier with regards to money and personal data, then they could pose a real threat to traditional banking if they chose to do so.

Banking on change

COVID-19 has encouraged consumers to adopt digital services that they would otherwise have taken years to get on board with, and banking is no different. While the uncertainty of life in the pandemic may have resulted in more loyal customers, the propensity for customers to remain so is not set in stone. With trust in technology brands relatively high, and an openness in younger generations towards them when it comes to banking, incumbent banks need to leverage the trust they have by using their brand and scale and by investing in technology of their own to fend off newer entrants.

Consumers say they want access to new products and services. Those organisations that can provide options with the fastest, most seamless experiences — across the human digital intersection — will win their favour. Banks, therefore, should focus on their customers and link digital strategies and value to the appropriate segments. By leveraging their ecosystems to excel at delivering a digital-first, customer-centric experience they will have a chance not only to retain customers, but to keep a step ahead of the hungry technology companies at the door.

* Thirty-four percent of respondents said they were banking less with cash than they did pre-pandemic, and 29 percent were using physical branches less.

** It’s worth noting that those aged 55+ (and those with high incomes) are least likely to agree that we eventually won’t need people for great customer experiences. With the risk of creating a deeper digital divide between customer segments, banks should consider differentiating their customer value propositions by segment.