Banks are across the globe becoming progressively less relevant to their customers. According to a new study by EY, digitisation and the emergence of FinTech companies, among others, have seen the relevance of banks globally fall to its lowest point in history.
Banks have for decades been at the heart of economies, markets and in peoples’ financial lives, with few able to manage their business and financial matters without banking services. According to accounting and consultancy giant EY, banks were until recently 100% relevant for their customers. They were the only place where stakeholders could go for financial services or specific banking products.
Through a range of trends that have come together over the past years, such as digitisation, the growth of the alternative finance market, changing customer expectations, the emergence of FinTech and the rise of banking products from non-banking players, the relevance of the banking sector has however, of late, been on the slide. This is evident from the EY’s Bank Relevance Index (BRI), for which the consultancy surveyed 55,000 bank customers globally.
The latest edition of the BRI index saw the banking’s sector score drop to 75 (on a scale of 0 to 100). According to the business advisory the index score mainly says something about the relevance of the banking sector as a whole, with large differences both between countries and between different banks within the same country (sometimes >10%). To arrive at the index scores for banks worldwide, EY looked at four different variables. The first variable looks at the financial institution consumers see as their primary financial services – the more people cite their bank as their primary financial services provider, the higher this component of the overall score. The other variables are confidence in their bank, the product mix which consumers access from their banks and intent to purchase products from their bank in the future. A lower relevancy means that banks risk losing their competitiveness, and that they may lose market share vis a vis substitute markets/products.
Scandinavian banks retain the highest relevance scores worldwide according to the study, with an average BRI score of 81. Finland has the highest score: the relevance of the banks in the Nordic country is given a score of 82.7. Also, Norway, Denmark and Sweden are in the top six countries for bank relevance. In the list of most relevant banking sectors, Germany is in second place with 81.1 points out of 100, followed by New Zealand with 80.6. The relevance of the UK banking sector is still slightly above the global average with a BRI score of 75.6.
Following Scandinavia, Oceania and Western Europe, index scores are the highest in North America, Eastern Europe and Northern Europe (UK and Ireland). In terms of the relevancy score, banks in Africa, Latin America, Asia and the Middle East tend to score under the global average, with the lowest scores in the Middle East – which average a score of 67.6. The countries where banks are the least relevant to consumers are Saudi Arabia (59.7), Indonesia (66.9) and China (69.5). Of the European countries in the study, only Italy scored well below the global average with an index score of 71.6.