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PA OPINION

Who will win: Fintechs or banks? We asked the customers

Recent surveys from Svenskt Kvalitetsindex reveal 75 per cent of Swedish customers use services from more than one bank, with 26 per cent having more than three banks. This indicates that loyalty isn’t the main driver when choosing a bank – customers are looking for the best bank to provide the service they want. So, are banks starting to lose control of their customers?

The reality is, the four largest Swedish banks still have a tight hold on day to day banking services such as current accounts, savings accounts, and mortgages. Nordea, Swedbank, SEB, and Handelsbanken have a total market share of about 70 per cent, which has remained largely unchanged over the past five years.

Historically, Swedish FinTechs have targeted niche, profitable areas such as payments, consumer lending, and stock brokerage. However, this picture is changing as global FinTech competition becomes more intense. There are several new players on the scene, like Revolut, LunarWay and even PFC (formerly Betalo) trying to gain traction. Most of these companies are not yet looking to completely replace the traditional banks, instead betting on a combination of lower foreign exchange fees and personal financial management as a winning combination for the digital native generation. But with customer loyalty decreasing and digital now expected as normal, FinTechs stand to gain a foothold in Swedish consumer banking.

Three ways banks can respond to FinTech disruption

So, how can banks respond to FinTech disruption and safeguard their long-term profitability? To find out, we carried out three studies based on qualitative interviews of consumers in Sweden and an online survey. Based on our findings and experience in the market, there are three actions that banks should prioritise:

1. Deliver more value

While digital is certainly driving new behaviours and expectations from customers, it’s dangerous to think that shiny digital packaging around products and services will be enough to keep customers satisfied. Digital services and tools are no longer a unique selling point but rather a hygiene factor expected by 80 per cent of customers.

The top priorities for customers when choosing a bank or supplier of financial services are the interest rates on loans (72 per cent) and prices for services (59 per cent). Unsurprisingly, costs are still one of the most important factors. So, banks must offer financial value as well as service value. They should use digital to deliver better service, anticipate needs and help clients haver additional peace of mind that their bank is helping them plan their financial future. This shifts the digital conversation away from replication of tools to how banks can delight customers.

2. Build greater trust

To give clarity on where banks should focus, we’ve divided the features, services, and products they can offer into four broad categories (figure 1, right) based on how they deliver against customer expectations. Customers want traditional banking products made simple and easy: fast payments, loans that enable them to fulfil their goals with low interest rates, and savings products tailored to their financial goals with high rates of return. They want rewards for being a loyal customer, like low foreign exchange fees for those who frequently travel, airline bonus points, or even cashback. And they want good advice and customer service tailored to their personal situation.

More than anything, our research found that customers want to feel appreciated. Respondents mentioned wanting to talk to a real person. For those lucky enough to have found a trusted advisor at their bank, their loyalty was unbreakable. Brand and even low prices can’t compete with trust and a high-level service. A customer is willing to pay higher prices (within reason) to gain the peace of mind which comes with trust.

3. Become an integrator

With so many people using more than one bank, there’s an opportunity for the incumbents to leverage their brands by becoming a service integrator – our study found that Swedish consumers are more likely to trust traditional banks than the new entrants, and are more likely to try a new FinTech service if it’s connected to a bank they already know.

So, banks should allow FinTechs to plug services into their banking apps. That way, banks can focus on driving value and trust while offering nice-to-have features without spending time and effort developing them.

This can also bring other benefits, according to our study. The more services you integrate into one app, the more time consumers will spend on it, enabling that app to be a one-stop shop for financial services. This will become even more relevant in an increasingly fragmented banking ecosystem where consumers often have more than one provider but expect the same convenience in banking as they have in other parts of their life. The bank that is able to help their clients find all the financial services that they want, without leaving the bank’s eco-system, will help to drive loyalty through convenience.

Our research found that digital alone won’t sway Swedish banking customers. They expect a certain level of digital service, so new digital features don’t delight them as much as they used to. Instead, customers want products and services that make a difference to core household economics, delivered in a way that achieves their desired outcomes. And they want trusted financial advice, tailored to their situation.

Banks should stop chasing digital bells and whistles. Let the FinTechs play to their strengths and form mutually beneficial partnerships to delight customers. By becoming a vital integrator, banks will provide a better suite of services, retain and attract customers, and give FinTechs access to customers so they can prove the value of their ideas. It’s a model where everyone wins.

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