Digital banks are here to stay and many consumers are choosing to opt for digital banking solutions now more than ever before. So, is the traditional banking model in trouble?
One thing we know for sure, the banking industry is certainly lagging behind many other industries when it comes to digital innovation and meeting customers ever increasing expectation.
Many industries have seen their fair share of change over the past decade. From Airbnb taking on the accommodation industry to Amazon changing the face of retail.
At the core of these changes is technology, and the banks could stand to learn a thing or two from them, about how technology can both improve the customer experience and reduce costs.
Customers are now in control of how they connect with your business
Consumer expectations, needs and habits have completely changed the way we go about our day to day lives over the past ten years. We want things on our terms regarding how we connect with brands and have moved on from accepting what we would traditionally come to expect from our bank.
Digital innovation, convenience and highly efficient services are now not a nice to have, they are the most important factor when it comes to creating happy customers for any business–and the banking sector is no exception.
While the banks have been striving to improve customer relationships for several years now, there is no doubt the current Banking Royal Commission will have an impact.
Currently front and centre in the media the Royal Commission has been exposing scandals and unethical behaviour from the big banks and well-known financial planning services.
Fees being charged for no service or financial planning companies impersonating clients to gain information from their Superfund, these are just some of the issues coming out of a banking system that needed a wake-up call.
Putting sales and revenue generation over harder to quantify goals such as improved customer experience simply won’t work in the banking world of the future.
Trust and loyalty is driven by a customer-centric focus
The number one requirement for all generations of Australians from their bank is their desire for a safe and secure option.
We want to bank with someone we can trust. While this may have influenced people staying with traditional banks in the past, it remains to be seen whether online banks will be seen to be just as secure in the future.
In the long run, traditional banks run the risk of missing out on valuable opportunities to earn long-term customer trust and loyalty. For a long-time the banking industry made digital innovation take a back seat, allowing a significant number of fintech companies to enter the market and pressure the traditional banks to be more consumer-friendly.
Yes, a pretty website and an App might have helped the banks tick a digital box, but it hasn’t taken away the fact that if you have a problem that needs to be resolved, you still need to call up or go into a bank.
By putting customers truly first, a new way of digital banking not only requires a change in process but a change in culture as well.
It is actually much less about the technology and far more about the cultural changes that are necessary for a business to work in a digitised way. This is where fintechs have the edge. They employ staff who don’t need to be taken on the digital change journey, they are already there and looking to the future of what’s next.
So will the perfect storm of rapid advancements in technology, a dramatic shift in Australia’s top population groups to now be millennials and the fallout from the current Banking Royal Commission mean the traditional banking model is in trouble?
Are digital banks the future of banking services in Australia?
Don’t make me wait, give me speed and convenience
While the banks have been aware for some time now that millennials have far different banking needs and desires to their parents, it has only been recently where generation Y has had a dramatic demographic takeover.
The 25–34-year-old age bracket now claims the title of Australia’s largest population group in the latest Census.
When it comes to what millennials want in their bank, innovative digital solutions aren’t simply a nice to have they are a given.
The number one thing millennials want is speed and convenience. They want banking services that are easy to access and use, and they are not willing to settle for complicated and outdated banking processes.
Don’t make them stand in a never-ending bank queue if there is a technological solution that is far quicker and easier.
Despite being given a bad rap, millennials are actually quite savvy at getting value for money from their bank and place high importance on low fees.
Having grown up having a wealth of financial information at their fingertips online, not to mention the ease of comparing products online through sites such as ours, the tech generation wants to take care of all their banking with just a few simple clicks.
Traditional banks are slow to evolve
Traditional banks are built on the back of a number of legacy systems that are struggling to keep up with the current digital trends and what the next generation expects from their banking provider.
A significant expense to any bank is the cost of maintaining these ageing systems, so there is usually not a lot left to spend on innovation.
You just need to take a look at the rollout of the real-time payment transfers solution Osko to see that not all of our major banks have yet to implement this and offer it to their customers.
They are still working their way through the digital headache of joining analogue tracks with a digital superhighway.
We have seen what technology can do in different industries and the banking world has been relatively slow to adapt.
The longer they wait the harder it gets, which has meant they have paved the way for a number of fintech companies to be able to disrupt the relationship between the bank and its customers.
The rise of the fintechs
The fintech sector in Australia is now the fastest growing in the world. Leading with technology means they are able to process data quickly without the burden of legacy systems that have a significant impact on a bank’s profitability.
While the majority of these tech-savvy businesses are focused on digital lending in the small and medium business segment, we are seeing fintech businesses established across a range of verticals including data visualisation, financial advice, budgeting, payments and blockchain.
One emerging banking player to watch is volt bank, a digital bank that launched in May of this year. It’s the first new market entrant to have been granted a ‘restricted’ banking licence by APRA and the first new retail-focused bank licensed since the 1980s.
volt bank intends to bring an entirely new experience to banking with a mobile-led and customer-focused approach.
volt bank CEO, Steve Weston said: ‘volt bank will show Australians how banking can be done in a simpler and better way. There is a tremendous opportunity for new players to offer people something different’.
‘Through market-leading data analytics, volt bank will provide its customers a clearer picture of their financial position and be better informed to overcome their financial challenges, rather than be sold ‘one-size-fits-all’ solutions’, Weston said.
Subject to volt bank transitioning to a full licence, saving accounts, transaction accounts, term deposits and foreign exchange will be the first products it will make available to customers.
This will be followed by personal loans, mortgages, credit cards and in the longer term, small business banking products.
With the number of start-ups soaring, the banks are starting to pay attention to how digital data can be used to improve the customer experience.
In order to remain relevant, they’ve recognised the need to collaborate with growing fintechs to better meet the needs of today’s consumers.
This is good news for customers, as we can expect to see a more consumer-friendly and user-focused banking experience emerge, as opposed to the product-centric thinking of the past.
Omni-channel retail banking is the future
With cash no longer being king and mobile payments becoming commonplace, the number of physical branches for traditional banks is in decline.
However, there will likely always be a place for them, if there is a strong omnichannel retail banking focus. A shift needs to occur to move from a transaction-based service to a more holistic and engaging customer experience that can span across multiple channels.
As digital banks take a technology-led customer-led approach, customers are increasingly expecting that everything that can be done in the bank is also available to be done online, rather than being forced to have to follow the one and only option that banks have controlled in the past.
Our big 4 banks could well turn themselves into a digital bank of the future, but it will take a dramatic shift in their workforce.
To deliver in this new era, designers, customer experience professionals, retailers and innovators, who are likely from outside the sector and can bring their customer-centric experience to this industry could be the key.
User experience at the heart of what we deliver
There is no doubt the traditional banking model is on shaky ground.
But they can survive and thrive if they work rapidly to learn a thing or two from their fintech counterpart. By creating an unbeatable user experience through innovative technology.
At Credit Card Compare it’s always been our mission to create a user experience that makes it easier for you to find a credit card that will save you money and earn you rewards.
We make it easy for you to search by banks, features and rewards program. Plus have a range of online tools and videos to make it easier for you to assess your credit card options.
Because we know your time is precious, we have a live chat option for you to get the answers you need straight away.