Customer loyalty protects traditional banks from fintechs gaining ground
Leading consultancy Kearney has today released the latest data from its annual European Retail Banking Radar, finding that more than two-thirds (73%) of European bank clients have kept their primary account at the same institution for five years or longer.
According to Kearney, over half of Europeans (55%) still bank with one institution, with this figure as high as 77% in Austria.
Customer loyalty is therefore helping incumbent banks stave off competition from digital banks and fintechs who are quickly gaining ground. One in five (19%) respondents who changed their primary banking relationship in the past five years have switched to a digital bank or fintech.
Word-of-mouth and financial incentives are driving change
For consumers who have switched banks in the last five years, word-of-mouth (52%) and financial incentives (52%) were their two top reasons for making the change. Notably, a third of respondents (33%) also pointed towards poor customer experience as their reason for switching banks.
If clients change their primary current account, the study found that they are likely to move other products as well, including mortgages and investments. From those who have recently switched banks, 76% took at least one another additional product with them, typically savings accounts or credit cards. In fact, nearly half (44%) transferred their primary account, along with two or more products, to their new banks. This confirms that traditional banks need to beware their revenue from high value products, especially investments and mortgages.
Fintechs pose a growing threat to traditional banks
With one in ten (9%) customers now having their primary account with a digital bank or fintech, challengers are rapidly gaining scale and beginning to rival some of their traditional peers in size.
According to the study, younger clients are particularly likely to have their primary relationship with a digital bank or fintech, perhaps because many features of their products resonate with more tech-savvy consumers. Specifically, 35% of digital banks’ primary clients are under 35, and over half (55%) are under 45, highlighting the appeal of these platforms. Kearney’s research reflects a considerable level of trust in modern banking, with half of the respondents (48%) who have a primary relationship with a digital bank keeping between 80% and 100% of their finances at these institutions.
UK consumers most likely to change
15% of British respondents changed their primary bank in the last year – the highest in Europe. They are also the most likely to explore their options, with 63% of consumers in the United Kingdom having accounts with several financial providers. With the total number of bank and building society branches in the UK falling by 40% between 2012 and 2022, and the greater credibility given to fintech providers with institutions such as Revolut being awarded their banking license, the reasons for UK customers to move away from traditional banks are only increasing.
Roberto Freddi, partner at Kearney, comments: “While incumbent banks are benefitting from customer loyalty across Europe, there are clear signs to suggest that they must not take this loyalty for granted, as more and more people decide to switch to digital banks. They should be particularly careful about their younger customers, who are choosing fintechs for their flexibility and innovative offerings.
“There are several moves that these banks can make to successfully navigate the changing landscape, including investing in digital capabilities, focusing on consumer experience, offering financial incentives or creating their own digital brand. Some banks are already breaking free of the limitations of legacy systems and complex processes, and experimenting with new technologies, such as open banking, to provide an alternative option for more tech savvy clients.”
Please find a link to the full report here: https://www.kearney.com/industry/financial-services/european-retail-banking-radar
