From grain loans to farmers and merchants in ancient Mesopotamia, to the first joint venture for Europe and the Middle East run by the Knights Templar, to the inevitable Medici family, banking has been at the heart of history for the last 4,000 years. And as such a business, its days do not seem to be numbered, but the warning signs for the players currently dominating the market are growing: either they change with the times, or they will be out of action relatively quickly. And money, as the industrialist Henry Ford once said, is like an arm or a leg: "you use it or you lose it". Whoever wants to keep earning it will have to use it to adapt.
Are traditional banking organizations ready for this level of transformation, and 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 is not initially in the business as such, but in accepting the reality of the new customer: how does the customer interact with their bank or lender?
That is the root question of any digital transformation process. It is not the company: it is the customer. And in that sense, it is well worth taking a look at the 2019 Consumer Digital Banking Survey, prepared by the consulting firm PwC, because it shows the differences regarding the selection and definition of what is considered "primary bank", depending on the age of the consumer and therefore their greater or lesser proximity to the reality of a digitally transformed society.
A first gap can be found at the 35-year mark. Among consumers above that age, more than half select their primary bank based on the location of a branch or ATM. Among those below that age, that criterion is only valid in 3 out of 10 cases, because the references are others: convenience, ease of contact, and the ubiquitous Customer Experience.
In other words: less going for physical money and talking to agents, and more opening accounts from the palm of your hand, having immediate assistance and interacting through integrated channels, including social channels. Even, oddly enough, a decisive factor for this so-called Generation Z (the "post-millennial"), more or less indistinctly, is the recommendation of those closest to them: family and friends. The physical "headquarters" does not matter, it matters how well those closest to them do with one entity or another.
In fact, the very definition of "primary bank" is changing. For younger consumers, the key to choosing one bank over another is the level of ease of doing all kinds of transactions, so that firms such as PayPal or Apple Pay can be considered "primary banks" to the detriment of companies whose main function is to act as a depository for accounts.
Against this backdrop, how are financial institutions' attempts to become "digital banks" perceived? In most cases, as a "shiny veneer" that classic companies have put on a worn-out suit. 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 even replace the previous lending 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 the loss of money is not knowing how to use it.
To transform is to see where the needs of customers are that will shape the future. When you compare traditional actions between Baby Boomer and Gen Z customers, you gain a more global understanding of the phenomenon. For example: Is the "primary bank" the place from which personal finances are controlled? Yes for 81% of the older clientele, but only for 56% of the "zetas"; is it the place where most financial actions are taken? Yes for 68% of boomers, versus 51% among younger consumers; the place where paychecks are deposited? "Boomers," yes for 56%, down 10 points (46%) for "zetas."
If we talk in terms of credibility and trust, the contrast is also striking. For older consumers, nearly three-quarters (72%) trust their primary bank the most when it comes to their own money activity. But that percentage is slightly more than half (53%) for Generation Z customers, for whom having most or all of their money deposited in an account necessarily implies blind trust in their "primary bank."
It should come as no surprise, therefore, that the old policies of market capture and expansion are now guiding the strategic decisions of banks. Consumers under 35 show a low interest, and decreasing interest as age decreases, in terms such as "interest" or "bonus". 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, claim and demand is in their hands through digital tools. What they demand is experience. Something that makes it worthwhile to have signed up with one or the other entity. Or to switch from one to the other.
And it will not be because the traditional activity of banks (lending money) is going to disappear. According to the survey, the use of loans is increasing significantly with younger individuals, encouraged by lower interest rates and fees, as well as faster access to cash. The younger generation relies more on credit, and especially if it comes from an "online lender", to the point that they are three times more active than baby boomers in this segment. Whoever wants to do financial business has it easier than ever: operate online and target the younger consumer. And with a twist: loans understood not as financial products, but as services aimed at solving needs. That is the key: accompanying the consumer, not compromising his economic future.
As in almost every business, banking is not going to disappear with the new approaches. It will probably be strengthened. What is in question is who the protagonists will be. The new lenders, the new Templars, the new Medici.
Photo by Artem Beliaikin on Unsplash
