From grain loans to farmers and merchants in ancient Mesopotamia, to the first joint venture for Europe and the Middle East managed by the Knights Templar, to the inevitable Medici family, banking has been a fundamental part of history for the last 4,000 years. And as such, the business does not seem to be coming to an end, but there are increasing warning signs for the players who currently dominate the market: either they change with the times, or they will be out of the game relatively quickly. And money, as industrialist Henry Ford said, is like an arm or a leg: "use it or lose it." Those who want to continue earning it will have to use it to adapt.
Are traditional banking organizations prepared for this level of transformation? Are they at the level required to understand what it takes to become a digital competitor? If there is any difference between traditional and digital banking, it does not lie in the company itself, but in accepting the reality of the new customer: how do they interact with their bank or credit institution?
That is the fundamental question behind any digital transformation process. It is not the company: it is the customer. And in that sense, it is well worth referring to the 2019 Consumer Digital Banking Survey, conducted by the consulting firm PwC, because it shows the differences in the selection and definition of what is considered a "primary bank," based on the age of the consumer and, therefore, their greater or lesser proximity to the reality of a digitally transformed society.
We can find the first gap at the 35-year-old mark. Among consumers above that age, more than half choose their primary bank based on the location of a branch or ATM. Among those below that age, this criterion is only valid in 3 out of 10 cases, because other factors are more important: convenience, ease of contact, and the ever-present customer experience.
In other words: less going to get physical money and talking to agents, and more opening accounts from the palm of your hand, getting immediate assistance, and interacting through integrated channels, including social channels. Even, and as unbelievable as it may seem, a decisive factor for Generation Z (the"post-millennials"), more or less indiscriminately, is the recommendation of those closest to them: family and friends. The physical "headquarters" does not matter; what matters is how well those closest to them fare with one entity or another.
In fact, the very definition of "primary bank" is changing. For younger consumers, the key to deciding between one institution or another lies in the ease with which they can carry out all kinds of transactions, meaning that companies such as PayPal or Apple Pay can be considered "primary banks" to the detriment of companies whose main function is to act as account depositories.
Given this, how are attempts by financial institutions to become "digital banks" perceived? In most cases, as a "shiny badge" that traditional companies have pinned on their well-worn suits. If there is no ambition to reinvent the relationship with this new customer from scratch, there is certainly no ambition to finance the development of organizations that will eventually replace the previous credit institution. In other words, it is perceived that the money is not being used for what it should be used for. And, as we have seen above, the prelude to losing money is not knowing how to use it.
Transformation means identifying the needs of customers that will shape the future. Comparing traditional behaviors betweenBaby Boomer andGen Z customers provides a more comprehensive understanding of the phenomenon. For example: Is the "primary bank" the place where personal finances are managed? Yes for 81% of older customers, but only for 56% of Gen Zers; is it the place where most financial actions are carried out? Yes for 68% of Boomers, compared to 51% among younger consumers. Is it the place where paychecks are deposited? For Boomers, yes for 56%, 10 points less (46%) for Gen Zers.
When it comes to credibility and trust, the contrast is also striking. For older consumers, almost three-quarters (72%) trust their primary bank the most when it comes to managing their money. But that percentage is slightly more than half (53%) for Gen Z customers, for whom having most or all of their money deposited in an account necessarily implies blind trust in their "primary bank."
Therefore, it should come as no surprise that old policies for attracting and expanding market share are now guiding strategic decisions in the banking sector. Consumers under the age of 35 show little interest, which decreases as they get younger, in terms such as "interest" or "bonuses." They take it for granted that the differences between one offer and another will be minimal, and they also assume that the power to compare, complain, and demand is in their hands through digital tools. What they demand is experience. Something that makes it worthwhile to sign up with one institution or another. Or to switch from one to another.
And it won't be because the traditional activity of banks (lending money) is going to disappear. According to the survey, the use of loans increases significantly among younger individuals, encouraged by interest rates and low fees, as well as faster access to cash. Younger generations rely more on credit, especially when it comes to online lenders, to the point that they triple the activity of baby boomers in this segment. Anyone who wants to do financial business has it easier than ever: operate online and target younger consumers. And with one nuance: credit understood not as a financial product, but as a service aimed at meeting needs. That is the key: accompanying the consumer without compromising their economic future.
As in almost all businesses, banking will not disappear with the new approaches. It will probably be reinforced. What is in question is who will be the protagonists. The new lenders, the new Templars, the new Medicis.
Photo byArtem BeliaikinonUnsplash
