2 in 5 consumers predict that the bank of the future will be a technology company


The future of banking is on everyone’s lips, but often as something abstract, not imminent.

But keep in mind that the future that was talked about five years ago – which seems almost like yesterday – is what is happening now. So it’s a little worrying to learn that in a major new study, two-thirds of banking customers believe most consumers assume their main bank is fully online in five years.

Maybe that will be true. Maybe not. But already more younger adults — Millennials and Gen Z — see a big tech company like Apple, or a fintech like Venmo, or an online-only bank like Chime as their primary financial provider, rather than a regional or community bank.

The future of banking will clearly be different and mostly digital.

What bank customers say

Traditional institutions, particularly regional and community banks and credit unions, have an opportunity to meet the needs and wants of their prospective customers and claim competitive advantages, according to the study, but only if they act quickly.

“Digital banking…is clearly no longer optional or a nice-to-have, but a must-have that drives growth, loyalty and positive experiences,” according to a nationwide survey by Alkami Technology. “At the same time, younger generations bring with them new and different expectations that create…a significant opportunity for any financial institution willing to adapt.”

The company surveyed 1,500 US bank account holders who are active in digital banking to varying degrees. Respondents were weighted by age, region, gender, and ethnicity according to the 2020 US Census. The most important findings:

  • Younger generations are up for grabs, as nearly a quarter of them are unsure their current primary financial institution will remain so in the coming year.
  • People who interact with their financial institution through digital means, whether through mobile apps or a website, tend to use more products than those who don’t – and the more often they connect digitally, the more products they use.
  • Customers of regional and local financial institutions are less likely than any other group to believe that their financial relationship will grow over the next year.
  • Delivering excellent digital banking experiences goes a long way in increasing the usage of other products – regardless of generation.
  • An often-overlooked way to engage consumers is through the delivery of personal finance management services through digital platforms.

The time to study the trend is over

Among the report’s key conclusions is the blunt assessment that financial institutions must act quickly to deliver the digital services consumers are increasingly demanding.

“The financial institution of today is not what consumers believe the financial institution of the future will look like or offer,” the study states. According to this, 44% of bank customers believe that the bank of the future will be a technology company.

Digital expectations:

65% of banking customers believe most Americans expect their main bank to be fully online in five years.

As mentioned above, the Alkami sample consisted of people who were active users of digital banking. However, the report points out that “active” includes fairly basic things like checking account balances, paying bills, and transferring funds — in other words, a fairly low threshold.

“All of this underscores the urgency and importance that financial institution leaders take action now to best align with and serve consumers,” the report said.

Continue reading: Fighting for consumer attention in the digital banking war

The preference of the primary financial provider is shifting

The two younger adult generations – Millennials and Gen Z, who are now aged between 22 and 45 together – are more likely to claim that a neobank, big tech company or fintech company is their primary financial provider. Gen X and Baby Boomers lean toward regional or municipal banks and credit unions by a wide margin.

Which businesses consider consumers to be their primary banking provider

Source: Alkami technology

“This creates a clear need for regional and community financial institutions as they risk aging their customer bases or members while emerging generations initiate and build relationships with alternative financial providers,” the study notes. “Regional and local financial institutions need to recognize this and act now to reverse this trend.”

Interestingly, all generations fairly equally claim large national banks or credit unions as their primary financial institutions — about a third each for Gen Z, Millennials, and Gen X, and nearly half for Baby Boomers. This is subject to change, however, as noted below.

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Regional and community bank growth at risk

Regional and local banks and credit unions are far from the forefront as account holders consider expanding their relationship with their primary financial institution in the coming year. Only 27% of customers who primarily use these institutions expect to increase deposits, loans or other transactions there. In comparison, the percentages of customers who primarily used the other provider categories were all significantly more likely to grow their relationships: large national financial institutions (35%); neobanks (51%); fintechs (53%); and large technology companies (57%).

“This is a dramatic difference in expectations that can affect consumer behavior,” the study said. “Regional and local financial institutions must act urgently to address this potential risk to organic growth.”

Straight trend:

Put simply, the more account holders access a financial institution digitally, the more products and services they use.

The study also examined the correlation between digital banking usage and relationship depth. The data showed that digital banking users who access their mobile app and/or online banking multiple times a day have 1.71 times as many products at their primary financial institution as those who access digital banking at least once a year access.

The correlation is linear across interaction frequency, with those who access digital banking at least once a week having 1.3 times the number of products; those who access it a few times a month have 1.21 times the number of products; and those who access it once a month have 1.08 times the number of products.

Continue reading:

Digital excellence is the equalizer

What is the first thing a financial institution must do to attract and retain customers? Make the digital experience user-friendly, clear, intuitive, comprehensive and personalized.

This is particularly important for regional and municipal financial institutions. The study found that these have 14% lower penetration of existing products than the national average.

“40% of account holders at regional and local financial institutions say the relationship gap between them and their financial institution can be bridged with a fully satisfying digital banking experience,” the study states.

This applies to all generations. “In the case of digital banking, a great experience is age-agnostic and allows regional and local banks and credit unions to confidently advance their skills to meet their existing customers and an untapped market of emerging account holders where they currently are,” according to the study says.

Opportunity for growth hidden from view

Three words could describe the next big growth area in banking: personal financial management. Especially the modern app-based version, which is easy to use and often comes with prompts and reminders.

“The rise of personal finance management is creating new expectations and clear differentiators for financial institutions to take the lead in serving their stakeholders,” the study states. “Personal finance management is not only highly desirable across generations, but can also foster engagement and connection with consumers at a critical time in today’s highly competitive marketplace.”

As shown below, financial wellness accounts ranked right behind savings accounts and credit cards for whether 14 different financial services are most important.

Consumer interest in receiving financial products such as savings account, credit card, financial wellness account, investment account and mobile wallet

The study claims that 64% of the banking market does not have a financial wellness service.

“The desire for personal financial management is a hidden trend that should move up the priority list of financial institution executives,” the study advises. “Most consumers today are not subscribing to financial wellness services, which presents a significant…opportunity for financial service providers to take advantage of.”

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