Digital-first direct banks are outperforming the world’s top 50 banks on nearly all customer service metrics, including privacy, security, problem solving and real-time payments.
This was one of the key findings of the fourth annual Performance Against Customer Expectations study (or PACE) from FIS, which offers a clear view into how well banking providers are meeting the needs of their customers.
The global report, which surveyed thousands of consumers across all age and sociodemographic segments, asked them to rank the importance of nine key performance indicators for banking, and then to rate their provider’s performance against those expectations.
The research highlights key differences between the countries surveyed (USA, UK, Germany, India). Within the UK, challenger banks and fintech start-ups are clearly shaking up the banking sector, as consumers now expect a digital-first, customised and convenient banking experience. In the US specifically, consumers expect banks to be always on, to remain distant but accessible. Identified as an age of “helicopter banking”, customers expect banks to act as long-term advisors that are always there in the moment of need. In India, the focus remains heavily on moving toward a digital-first economy, largely due to the government’s demonetisation effort that started in 2016, forcing consumers to embrace non-traditional banking services.
Meanwhile in Germany, where the preference for cash over cards and mobile payments is well documented, privacy and security concerns are high on the agenda. However, there are signs that this may be changing, as younger consumers slowly embrace digital banking services.
Whilst the drivers behind changing consumer preferences differ across the globe, what remains the same across the globe is that consumers are demanding ever more consistent and convenient banking experiences. Digital self-service and control were two of the highest priorities reported by those surveyed, as lifestyle preferences adapt to a digital-first world.
One commonality is the shift consumers are making toward mobile banking, with the phone now considered the primary channel for accessing banking services, far more so than via desktop PCs, ATMs, or even physical bank branches. This places the new wave of digital-first, online-only challenger banks, who have built their service offering around the mobile device significantly further ahead of much of the competition. Unshackled by inflexible core systems or slowly depreciating capital expenses, simplifying access to financial services for customers has enabled them to begin to carve out market share.
This has been an uncomfortable shift for many established financial institutions, with the mobile interface now becoming the “face” of a bank, more so even than high-street branches or the employees who staff them. A poor performing mobile app is now enough to turn off potential customers, and the trust that existing consumers hold for their banks may not be enough to withhold them from seeking a better service elsewhere.
Financial institutions therefore need to be more pre-emptive in deploying the services consumers of the future will want. Fintech upstarts and major technology firms are beginning to carve out vertical service offerings in areas such as money management, peer-to-peer payments and loans – services traditionally offered by the bank. In the UK, for example, consumers are showing no signs of waiting for banks to move with the times. Sixty-six per cent of PACE survey respondents reported using alternative financial services overall, with Millennials being the highest users of all.
Whilst open banking within Europe has been driven largely by regulation, it is only a matter of time before it becomes a reality in global markets, including the U.S. Whether through legislation or driven by pressures from new market entrants and changing consumer preferences, it’s critical that banks begin to understand how APIs and third-party services will impact their business before it’s too late.
A proactive approach could even begin to create additional revenues from their existing customer base. Despite digital-first challenger banks beating the market on satisfaction, the rest of the market is not far behind, and the majority of customers are satisfied with their banking relationships. Trust is the most valued aspect of a consumer’s banking relationship, and these early stages of Open Banking present an opportunity to leverage consumers’ favourable views of their security and privacy controls to become the customer’s ‘data guardian’, to help keep banks relevant in the digital world.
Established banks who are able to maintain a position as the central – and importantly, digital – hub for all the financial needs of customers will have a bright future. By engaging with the right technology partners across a broader range of services such as insurance or loyalty applications through a single user interface, they will create a win-win situation for all. Those quick to formulate and demonstrate the effectiveness of open banking strategies today, adding greater value and satisfying the expectations of digital-first customers, will be in a better position to while protect future revenue sources and gain a significant advantage over both their new and traditional rivals.
To read the full report, visit the PACE 2018 experience.
Author:Bruce Jennings, Head of International Solutions and Strategy, FIS
BOJ to highlight climate risks as key theme of bank tests this year – sources
By Leika Kihara and Takahiko Wada
TOKYO (Reuters) – The Bank of Japan will for the first time highlight climate change risks as among key themes in its bank examinations this year, sources said, joining major peers moving to gain research clout on the effects of global warming.
In guidelines on the examinations due next month, the BOJ will clarify its readiness to coordinate with Japan’s banking regulator in analysing the impact of climate risks on financial institutions, said three sources familiar with the matter.
The central bank will also beef up cooperation with the regulator, the Financial Services Agency (FSA), in studying European examples and specific ways to measure financial risks associated with climate change, they said.
The moves are part of Japan’s efforts to follow in the footsteps of an increasing number of countries working on or considering stress-testing financial institutions on climate risks.
“For the BOJ, green QE is still off the radar. The more approachable and near-term focus is to assess climate change risks on the financial system,” one of the sources said, a view echoed by two other sources.
“Climate change is a key theme for the BOJ this year,” another source said, adding that stress-testing climate risks on financial institutions is “not imminent, but something Japan needs to aim for in the future.”
The BOJ conducts hearing and on-site monitoring in voluntary examinations on financial institutions. But it does not have regulatory authority, which falls under the FSA. Neither the BOJ nor the FSA stress-tests banks on climate risks.
Officials of the two institutions have been discussing climate change as among topics that could affect Japan’s banking system. But progress toward stress-testing financial institutions has been slow because of a lack of data and models.
The BOJ began to gear up efforts on climate change after Prime Minister Yoshihide Suga last year pledged to make “green” investment a key pillar of his growth strategy.
The Biden administration’s focus on battling climate change, and the Federal Reserve’s decision in December to join an international central banks’ group focused on climate risks, also prodded the BOJ to engage more, the sources said.
But actual roll-out of stress tests will take at least another year as policymakers work out guidelines and details, including whether they will ask banks to conduct a “self-assessment,” the sources said.
(Reporting by Leika Kihara and Takahiko Wada. Editing by Gerry Doyle; Editing by Chang-Ran Kim)
ECB watching yield surge but not controlling curve: Lane
FRANKFURT (Reuters) – The European Central Bank is monitoring the recent surge in government bond borrowing costs but will not try to control the yield curve, ECB chief economist Philip Lane told a Spanish newspaper on Friday.
Yields have soared, particularly over the past week, partly driven by rising U.S. Treasury yields. Verbal intervention by key ECB officials, including ECB chief Christine Lagarde, has failed to stem the rally.
“At this stage, an excessive tightening in yields would be inconsistent with fighting the pandemic shock to the inflation path,” Lane said in an interview with Expansión.
“But at the same time, it is crystal clear that we are not engaged in yield curve control, in the sense that we want to keep a particular yield constant,” he added.
Ten-year Bund yields, a key benchmark for the 19-country euro zone, now yield -0.223%, up from around -0.60% at the start of the year.
Lane added that while inflation is indeed rebounding, the increase was not yet what the ECB was looking for after a decade of undershooting its target.
“What we’re seeing now is not a significant and persistent change in the path of inflation,” he said, arguing that price growth was still too low and required ECB stimulus.
Lane predicted that the bloc would start rebounding from its pandemic-induced slump already in the second quarter and the impact of the current lockdowns would be less severe than a year ago.
(Reporting by Balazs Koranyi; Editing by Shri Navaratnam and Ana Nicolaci da Costa)
Can banks acquire customers with biometric payment cards?
By Michel Roig, Senior Vice President, Head of Busines Line Payments & Access, Fingerprints
When it comes to banking, consumers are traditionally loyalists and often stay with their ban ks from early adulthood through to retirement. In fact, one 2018 study found that just 4% of U.S. consumers switched primary banks that year.
Yet increasingly, consumers want more from their bank than just a place to store their money. The era of ‘one bank for life’ is coming to a close, so banks will have to keep improving the customer experience to stay competitive. In an industry where customer retention and acquisition are critical, finding opportunities to offer consumers value-added products and services is key.
One such opportunity is the biometric payment card. With early adopters of the technology already rolling out the cards to their customers and 51% of consumers willing to switch banks to get their hands on the tech, now is the time for banks to get serious about biometric cards. From boosting brand image and adding value for customers to, ultimately, increasing revenue, let’s take a look at the business case for biometric payment cards.
Improving the payment experience
Contactless cards are the most-used payment method in store, with 77% of consumers using their card weekly or even daily. Consumers praise contactless payments for their user-friendliness and 63% of consumers would like to use the payment method even more in the future.
Despite its popularity, however, some serious pain points remain. Our recent survey found that 51% of consumers worry about the lack of security if their contactless card were to be lost or stolen. This worry has increased from 38% in 2018 – a clear sign that security is a primary concern for consumers. Beyond security, the limitations on contactless transactions are also a point of frustration for many. 1 in 4 are confused about the maximum amount they can spend without entering their PIN at PoS terminals, and that you sometimes need to enter the PIN despite being under the cap, and an equal amount consider the payment cap too low for their usual in-store payments.
Banks that introduce biometric payment cards can enable their customers to tap and pay for any amount, every time, while at the same time improving the security.
Moreover, biometric payment cards are a way to harmonize the payment experience. Consumers are already used to unlocking their smartphone with a fingerprint sensor. With mobile payments and banking apps on the rise, biometric authentication is now increasingly common in consumer finance. By offering biometric technology in payments cards, banks can offer their customers the same convenience and security they are used to from their mobile banking.
Boosting brand image
Aesthetic and innovative design is increasingly a key consideration, particularly among affluent, executive, and millennial consumers. It is no surprise, then, that over 60% of these demographics would switch banks to receive a biometric payment card. But also, a large proportion of the more mainstream segments would consider switching banks to get this card, which shows the excitement of this technology across different consumer demographics, both for functional and emotional reasons.
What exactly are consumers looking for in their payment card, then? Our 2020 research found that ‘modern’ and ‘personalized’ cards are the highest-rated design traits for consumers. Most importantly, they want a card they feel they can show off and that is intuitive to use.
This is where biometric payments cards can help banks boost their brand image. Beyond the security and convenience that biometric cards offer, the technology brings a sense of futuristic innovation to consumers’ favorite payment method. By offering consumers this latest technological advancement banks can stay ahead of the curve, thereby increasing customers’ loyalty and, crucially, attracting new customers.
Attracting new customers is of course a good way to increase revenue, particularly considering 43% of consumers are willing to pay extra for a biometric payment card. 56% of banks have also said they would bundle this technology with other value-added services, creating the competitive offerings that consumers are looking for these days.
Creating these value-added services is not only important for driving revenue from customer acquisitions, but also for reducing the cost of losing customers. To regain a lost customer takes 5 times to cost of keeping one, and with consumers increasingly ‘shopping around for banks’, retaining them with up-to-date and value-adding services is crucial.
Besides supporting customer acquisition and retention, biometric technology itself can also increase revenue by reducing fraud and increasing transaction volumes. Not to mention the savings from reduced ‘lost PIN management’ internally!
Timing is everything
Biometrics is growing across payment methods. The technology is certified by major payment networks and already has received recognition from industry bodies, such as EMVCo. Consumers are used to the technology from unlocking their banking apps and verifying mobile payments, but mobile payments won’t work for every situation or demographic. Only 2% of consumers use their mobile for everyday in-store payments and in fact, 74% of active mobile payment users are also interested in having a biometric payment card. Card and mobile go hand-in-hand and work in harmony across online and physical payments, different situations and locations.
With biometric card trials moving to commercial roll-out this year, it won’t be long before this new tech is a consumer expectation. Timing is everything in business, and for banks looking to stay ahead, now is the perfect time to level up their payment card and offer their customers the convenience and security of biometric payments.
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