Digitization is disrupting financial services, spawning rapid change and technology-savvy competition. As consumers get more accustomed to digital transactions and the value afforded by personalization, one consequence has been a shifting of customer trust away from incumbent financial institutions.
Ernst & Young consumer financial research shows that more consumers today count a fintech firm than a bank as their most-trusted financial brand. The erosion of trust is most notable among younger consumers: More than half of Gen Z consumers consider a fintech their most trusted brand, and nearly as many have made a fintech their primary financial relationship (PFR).
This evolution of consumer sentiment, which accelerated sharply during the pandemic, represents an existential threat to incumbent financial brands. To compete, banks and wealth managers can leverage data more effectively to bolster their understanding of consumers’ needs and expectations and curate personalized and connected value propositions that foster trust.
Ernst & Young research highlights three actions on which FIs can focus now to recapture trust:
Win the battle for relationship primacy
In the survey, 31% of consumers named a fintech firm as their PFR, up from 6% in 2019. Significantly, 53% of those consumers have established direct deposits with a fintech firm. While incumbent FIs still have an advantage, fintechs are gaining ground.
PFR status isn’t as “sticky” as it once was — the average consumer today has at least three other financial relationships — but hosting day-to-day checking accounts, direct deposit of paychecks and other go-to features can open the door to deeper wallet shares and sales of more lucrative products and services.
To reassert their advantage, FIs can use customer data to provide hyper-personalized lifestyle experiences that make the relationship more valuable and connected. They also can leverage existing strengths more effectively. For example, while 24% of consumers expect to visit a branch less often in the future, 82% say that they still consider having a physical office nearby to be extremely or very important.
The key is to recognize that the branch’s role now complements the bank’s broader digital strategy and must be tightly integrated with other channels to provide better value and enhance trust. In Ernst & Young’s survey, 86% of consumers said that an institution’s ability to deliver seamless, cross-channel experiences was important.
For consumers, trust is closely correlated to how data is managed and used. The most important driver of trust across age and income categories is data security. That’s a traditional strength for incumbent FIs.
But there’s more to data than just security. Consumers know that their personal information is valuable, and they want transparency and control around how it’s used. That’s particularly the case with younger demographic groups.
The ability to leverage data management tools that allow FIs to curate personal ecosystem experiences while also providing consumers with transparency and a sense of control over how their information is used will likely be table stakes in the ongoing battle for trust and growth.
Consumer preferences and expectations are evolving quickly, requiring FIs to take a more expansive and holistic view of trust and how it fits with strategy. Consumers today often use dozens of digital services — for shopping, financial services, food delivery, ride sharing, travel and other activities — and want their FIs to accompany them on their journeys through these self-styled ecosystems.
Institutions that provide more personalized, fluid experiences across channels and ecosystems can enhance their value propositions and make themselves more indispensable to consumers. For example, a bank can monitor a consumer’s ecosystem spending activity and combine that information with its own internally generated insights to provide real-time financial advice.
They also can prioritize partnerships with a variety of players — including Big Tech and fintech firms that might be rivals — to ensure that they are providing customers with superior experiences. Partnering effectively might require investments in new capabilities, but it’s a customer-centric environment, and 63% of consumers in the survey said that they would “highly value” open banking and embedded finance solutions that connect with third-party digital ecosystems.
The digital transformation is changing the definition and role of trust. FIs that can leverage consumer data to differentiate and enhance their value propositions can win the battle for trust and position themselves for growth.
Nikhil Lele is financial services digital and customer growth leader at EY Americas, and Rob Mannamkery is senior manager, financial services digital strategy and business transformation consulting, at Ernst & Young, LLP.
More from BAI:
BAI Banking Outlook Special Report: “What’s ahead in 2021” discusses the trust gap between traditional banks and their upstart competitors.
Financial institutions are facing new challenges to keep their customers both happy and loyal. Download the Verint Experience Index: Banking Report to learn more about the consumer trends that can help you improve and grow. Download Now...
Holly Hughes, BAI CMO, will share BAI’s latest banking channel research and host a conversation with Colleen Wilson, Vice President, Product at MANTL, on what the trends mean for financial services leaders....
Providing accurate consumer information to credit-reporting agencies can be challenging for financial services organizations due to the volume and complexity involved.
Establishing a Fair Credit Reporting Act (FCRA) center of excellence can help ensure accuracy and reduce regulatory risk. It can...
Compliance training and professional development courses that are efficient, effective and on-point. Give your people the latest industry-approved tools they need to improve performance, reduce operational risk and better serve your customers.