Banks have always been the sole providers of financial products and services—that is, until now. It’s 2017 and the banking industry faces a new challenge in the form of ‘disruptive bank alternatives.’
In 2016, Ernst & Young conducted a worldwide Global Consumer Banking Survey that focused on the nature of customer behaviour and preferences. It also assessed what customers’ attitudes were towards the new emerging disruptive bank alternatives. The survey found that 40% of customers no longer rely on their banks as their sole financial service providers, and customers are increasingly turning towards non-bank providers for financial services. 20% of customers who haven’t yet used non-bank providers plan to use them in the near future.
So, what is causing this shift? I believe that customers are moving away from traditional banks because the banks don’t have the flexibility that is needed to meet changing customer preferences. I think banks haven’t been able to compete with flexible, tech-driven financial providers. This is because non-bank providers specialise in specific financial products and they provide superior customer service. Customers have flagged user experience as the main reason for considering switching over to non-bank competitors. I have noted that attractive rates and fees are not even in the top three reasons for the switch but rather, customers cite “extra-mile” customer service as their key reason.
Flexible and tech-driven non-bank providers have created an experience for customers that is instantly gratifying, and that has outstanding service quality, 24/7 availability, self-service, personalisation, and transparency of products and pricing. This has changed the customer experience for the better, and this is something that is very difficult for banks to compete with.
Although customers are currently using non-bank providers for wealth management, home loans, trade finance, and foreign exchange, a new trend is emerging known as a ‘marketplace-banking model’. This is where a handful of specialist non-banks get together to provide financial services and products that replicate the integrated experience that banks are able to provide to their clients. This gives non-bank providers an edge over traditional banks because they are now able to offer the same integrated experience and, at the same time, they are able to offer more solutions and superior customer experiences.
I cannot predict whether banks will be able to compete with these non-bank providers but what I do know is that the customer will reap all the benefits of having the disruptive players moving into the stagnant marketplace.