Restoring Trust in Retail Banking

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Retail banking is undergoing a massive disruption. While banks have traditionally been the providers of retail services, they’re now facing real competitive threats as new mobile technologies and emerging financial and non-financial intermediaries combine to provide trusted alternatives and less-expen­sive solutions for both the unbanked and for profitable customers.

Consumer banks are rapidly losing market share as a result. In fact, according to the 2013 Accenture study, Banking 2020, banks could lose about 35 percent of their market share by 2020, and up to 25 percent of U.S. banks could disappear completely.

The same study estimated that 15 percent of traditional banks’ revenues could shift to online-only players—including branchless banks and new technology entrants—in the next seven years as more consumers flock to technology driven services. Another 20 percent could go to “retail-driven players with a mass-market focus.”

Some of these non-traditional providers include Wal-Mart, which has partnered with American Express to offer Bluebird, an alternative to debit and checking accounts designed to enable consumers to deposit checks and pay bills via mobile devices, maintain a zero minimum balance, and avoid any overdraft fees; and 7-Eleven, which offers prepaid banking cards that enable customers with the ease of doing busi­ness by allowing ATM transactions, the purchase of money orders, fund transfers, check cashing, and bill pay.

In addition, online-only providers have made a splash on the scene. Top players include: Moven, an online debit account provider that promises to support its customers’ financial wellness through transparency, the ability to connect customers with their money 24/7, and the knowledge to make sound financial decisions; GoBank, which offers custom Visa and debit cards and mobile deposits; and Simple, which promises “no surprise fees,” offers budgeting tools, and boasts a branchless banking experience. [Note: Multinational bank BBVA acquired Simple in February 2014 for approximately $117 million, validating the importance of these new competitors.]

Traditional and non-traditional financial services insti­tutions alike are seeing some of the biggest advances happening in mobile banking. Accenture reported a 50 percent increase in mobile banking activity since 2012, with consumers saying online banking is the single most important investment banks can make.

By leveraging the wide range of mobile functionality available, including mobile POS such as Square and Paypal; near-field communication payments like Google Wallet; mobile banking, and in-app billing, traditional and non-traditional financial providers are offering a low-cost channel to acquire new customers and scale-up effi­ciently. In doing so, they’re hedging their bets for a share of the massive market currently dominated by the large consumer banking providers.

These mobile developments, as well as the introduction of mass market players, are posing a threat to financial institutions as profitable customers become less satisfied with their banks. According to the World Retail Banking Report 2013, from Capgemini and Efma, customers are mostly unsatisfied with their banks in five core areas: knowledge of customers’ needs and preferences (37 percent satisfied); product-channel fit (43 percent satisfied); trust and confidence (51 percent satisfied); intimacy and relationship-building (43 percent satisfied); and providing a consistent multichannel experience (44 percent satisfied).

This research shows that today’s banks must understand their customers, repair their relationships, and focus on providing personalized cross-channel engagements to defend against new competitors, avoid commoditization, and ultimately lead to higher revenue growth.

These repairs requires banks to deliver on the moments of truth for their customers, forming a trusted bond that transforms the customer experience.