Banking on the neo consumer

Coupled with an increasingly competitive landscape, where “neo banks” and non-traditional players are gaining traction, the banking sector is under more pressure than ever to transform. So, how can Australian banks – all banks - meet the next wave of consumers’ banking demands and maintain their relevance in this evolving climate?

“Neobanks are gaining ground at a pace that should be on the radar of boards and C-suite leaders across the sector.

The Australian banking sector is entering a period of significant change as market participants respond to drivers such as new technologies, the implementation of open banking and increasing consumer expectations around tech-driven convenience. In this environment, neobanks – tech firms providing financial services including fintechs, payment platforms, savings and investment apps and other tech companies, whether or not they hold banking licenses – are starting to gain ground.

The recent EY NextWave Global Consumer Banking Survey found although incumbent banks still lead when it comes to maintaining primary financial relationships (PFRs) with consumers, neobanks are gaining ground at a pace that should be on the radar of boards and C-suite leaders across the sector.

Globally, 27 per cent of consumers surveyed said they now have relationships with neobanks and 6 per cent cite a neobank as their PFR. The figures are a little lower among Australian consumers, with 10 per cent saying they have a relationship with a neobank and 5 per cent nominating a neobank as their PFR.

But while 79 per cent of Australian respondents say their main financial relationship is still with a traditional bank, it’s clear the challengers are starting to make inroads.

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All about trust

The good news for traditional banks is they still retain advantages in key areas such as trust, which has become a crucial front in the battle for financial relationship primacy. When it comes to trust, the local incumbent banks are operating from a position of strength with 72 per cent of Australian respondents saying they either completely or mostly trust their bank. For Australian respondents whose PFR is a traditional bank, confidence in their bank’s ability to protect their data (trustworthiness) and having a branch nearby so they can reach them when they want to (personal relationships) are the top-ranked trust factors.

Incumbent banks also have other inherent trust-related advantages, such as long-term relationships and a consumer preference to turn to banks when they need financial support during key life events. This strong legacy of trust is something banks can build on as they seek to strengthen relationships with the next generation of consumers.

On the other hand though, neobanks are gaining traction with consumers largely because of the superior products and personalised experiences they offer, with technology brands generally perceived by consumers to offer better products and services, and to be more innovative.

Consumers who choose neobanks for their PFRs mostly use them for deposits and digital payments. The emergence of payments as a core service within PFRs gives neobanks a clear competitive advantage since their offerings are generally strong in this area.

Strong privacy policies and features are the top priority influencing Australian respondents’ financial services purchasing decisions but rate and fee benefits and rewards also matter. The key though is to customise these benefits as generic offerings no longer attract attention.

Personalisation which helps maximise functional benefits linked to products, such as loyalty programs, are particularly valued by Australian respondents and can help deepen financial relationships. Other personalised experiences respondents say would motivate them to expand their relationship with their PFR include receiving the right offers at the right time and communications that show their PFR knows them and understands their life experiences.

Consumers should come away from every interaction thinking “my bank knows me well and treats me like an individual with unique needs”.

Playing the field

Consumers are also increasingly willing to have multiple financial relationships. The EY survey found most Australian respondents have multiple financial providers, with 39 per cent having three or more relationships. Given this fragmentation, it’s not surprising respondents are looking for seamless integration of their financial services across their multiple providers.

Further, more than 50 per cent of Australian respondents would value their most trusted financial providers partnering with other financial services and high-tech firms to expand their products and services – particularly Gen Z and millennial respondents.

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Banks have a significant opportunity to be the unifying point for consumers’ multiple financial relationships. Open banking and data sharing – with appropriate consent – will be key enablers of this integration. Ecosystem business models and personalisation capabilities will also be essential for banks wanting to deliver richer experiences and deepen customer relationships.

There is an opportunity for banks to collaborate with other providers to build comprehensive, immersive, interactive and connected digital ecosystems, using all available data about consumers’ financial lives, goals, social styles and personal preferences, to produce insights and promote daily decisions that lead to improved financial wellbeing.

Overall, while competitive threats are increasing, there is still time for incumbent banks to counter competitive threats – but they will need to act swiftly to protect their inherent advantages.

The opportunities for Australian banks are compelling, especially for those willing to rethink their growth strategies and expand their digital capabilities to curate better and more personalised customer experiences.

Banks should be looking to build new business models that are capable of satisfying today’s consumers expectations while also being able to evolve and scale quickly in order to meet future needs and market developments.

Tim Dring is the EY Oceania Banking and Capital Markets Leader

The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.