By W.B. King
For financial institutions to remain relevant in the next three to five years, a report from Ernst & Young (EY), NextWave of Consumer Financial Services (2023), finds that executives need to develop an “igniting growth” map that leads to customer value leadership.
“Despite macroeconomic uncertainty, geopolitical volatility and stubbornly high inflation, consumers push forward relentlessly, always looking for more value and ready to try new tools and technology to address unmet needs,” the report noted. “When new experiences and solutions from financial innovators can gain traction so quickly, incumbents are challenged to meet rising expectations and to satisfy continually shifting needs and preferences.”
Utilizing its proprietary NextWave market intelligence platform, EY researchers and report writers curated insights and benchmarking from more than 50,000 global consumers and more than 100 leading global banking, wealth management and fintech brands. From the fall of 2022 to the spring of 2023, 13,000 U.S. consumers across wealth tiers and age groups were polled. Additionally, a survey of 1,000 consumers following the March 2023 banking crisis was conducted that also included a survey of 415 C-suite executives across the banking, wealth management and fintech industries.
Consumers, the report found, are less trusting of banks (60%) than other industries, such as technology (74%), manufacturing (69%), transportation (66%) and telecommunications (64%).
“Since the financial crisis of 2008, the financial services industry has been among the least trusted sectors in the US. EY research highlights that the trust deficit results from many banking relationships being built more on apathy than on trust, which may lead some banks to mistake inertia for loyalty,” the report continued. “That’s a risk when new players can break through with wellness-centric offerings that give consumers more control.”
As a result, loyalty becomes a sticking point for many consumers. In today’s increasingly frictionless market, it is an easy process to switch financial institutions, the report stated.
Seventy-three percent of those polled said they would consider switching banks over the next 12 months. Sixty-four percent are willing to switch deposit relationships and 30% are willing to switch investment relationships.
The top reasons given for a potential switch: reduced risks by splitting money between accounts; better rates and benefits; solutions that better meet their needs and expectations; lack of personalized experience sand solutions; and products/services not meeting current financial needs.
“Banks are increasingly competing for the economy’s scarcest resource — consumer attention — both within the flow of everyday life and at big moments. Continuously connected consumers want access to everything, all the time, from any device — plus the ability to jump between channels via superfluid experiences,” the report noted. “The more financial services become deeply embedded in commerce, lifestyle, gaming and social media, the greater the risk that banking brands will become invisible. This attention gap will only widen as projected digital interactions grow exponentially in the coming years.”
Convenience Bundles
When looking at “banks today,” “fintechs today” and “consumers today,” the report found that the market is increasingly disaggregated with traditional services unbundled, which is forcing new competition by multiple players.
“Consumers are racing toward personalized value ecosystems. ‘Convenience bundles’ are giving way to curated, connected ecosystems, with customers at the center,” the report stated. “The end game is what we call ‘value constellations,’ which greatly expand the opportunities for banks to grow consumer trust and strengthen their market position.”
When investigating value constellations, banking executives should be familiar with the term personal financial operating system (PFOS) These artificial intelligence (AI) – driven platforms are becoming the “central foundation for guiding consumers’ digital journeys,” the report noted.
PFOS, the report further found, are connecting consumers to a “dynamic range of services” aimed at improving their financial lives through continuous, relevant interactions and engagement. “Advances in generative AI, cloud-native platform models and embedded finance ecosystems have made PFOS a necessary north star for banks that seek consumer primacy.”
Executives shouldn’t view PFOS as just another financial app, but rather a “super” app of the future.
“Ultimately, we believe that the PFOS will form the heart of the future business models for the most successful financial services institutions and become as ubiquitous as the platforms that consumers use for e-commerce, entertainment and health care,” the report noted. “Simple account aggregation and consolidated dashboards will not be enough to drive relevance, satisfaction or loyalty going forward. Banks must adopt AI more broadly to deliver simplicity, convenience and value via concierge-like connectivity, and personalized assistance to all consumers.”
