Retail banks adjust to challenge of FinTechs

11 August 2020 3 min. read
More news on

Traditional banks have increasingly lost clientele to originally non-bank, new players on the market, in recent years. This is partly because they cannot offer customers the digital experience that FinTechs, established specialists and large technology companies can.

A recently released report from strategic consultancy Bain & Company has examined why retail banks are at risk of losing customers to new competition. The survey, which surveyed more than 131,000 consumers in 22 countries, found that customers who purchase banking products prefer digital channels – and this seems to be the biggest challenge to market incumbents now.

Between 2017 and 2019, it appears that the share of purchases via the digital channel increased between 2% and 16%, with the percentage of customers purchasing banking products via digital channels now between 18% and 60%, depending on the country concerned. The UK leads the list with a share of 60%, followed by the Netherlands in second place, with about 55%, just ahead of the respective numbers three and four, China and Germany.

Percentage of respondents using digital tools to purchase their most recent banking product

According to Bain's research, customers in emerging markets are especially willing to try banking with a tech company like Facebook or Google. Nearly 90% of the survey respondents from China, and about 80% in Colombia and Brazil, indicated their willingness to purchase banking services from an established technology company – contrasting drastically with developed markets such as France and Switzerland, where willingness is lowest.

FinTechs enter the mainstream

The research shows that for relatively "large" and impactful purchases, most people do have a preference for human contact, for example when applying for a mortgage or opening a general investment account. This is unlikely to change due to the added need for security people need for such investments – and only being physically present will do for that currently.

However, there is appetite for a broader ecosystem of partners and suppliers, as the research results clearly hint at the need for a "one-stop-shop." Consumers want to be able to go there for personal credit solutions, to manage their personal finances or, for example, to support entrepreneurs with their own business.

This is reflected by the fact that FinTechs are becoming more and more mainstream within more developed markets. For example, in the last 12 months, about 70% of respondents from Sweden have used post purchase payments platform Klarna; while in Singapore 40% of respondents of all ages have used digital pre-paid card GrabPay. This reflects an increasing preference among customers for a so-called 'digital-only' experience when it comes to searching for and buying financial products.

Banks are making progress

In addition to meeting customer needs, banks must leverage digital technologies to improve backend operations and cut costs. With regards to responding to this new challenge, Bain notes that several banks have now made great progress.

In the UK, for example, NatWest launched Home Agent, a digital platform that connects first-time home buyers with partners offering a variety of services. This includes services such as valuations, utility deals, moving services, cleaning services and general contracts. The Royal Bank of Scotland has also developed a digital mortgage product that could remove 66 pages of paperwork and cut the closing time of a mortgage from 23 days to 11 days.

Elsewhere, in the US, Capital One offers online listings of vehicles and tools that can instantly qualify car buyers to qualify for financing. In Singapore meanwhile, DBS Bank now operates the country's largest direct car seller-buyer marketplace.