Digital banking to be the norm by 2015

13 January 2012

Digital banking is set to overtake branch networks as the main way customers interact with their bank by 2015.  Our new report ‘The new digital tipping point’, suggests that banks are missing a vital new source of revenue growth as they have been too slow to respond to the digital innovations that have radically changed business models and redefined customer experience.  This is despite strong demand for digital banking products from consumers and the fact they are willing to pay for these.

The research was conducted with over 3,000 banking customers across nine developed and emerging markets and found that most consumers are willing to pay up to £10 a month for digital banking services if they believe they offer convenience and value. The research reveals that there is customer demand for innovative digital offerings such as social media notifications, an electronic wallet for loyalty cards and financial tools provided by banks and that these are the products consumers are most willing to pay for. In the UK, almost two thirds (65%) of respondents said they are willing to pay just over £4 a month for their bank to store loyalty card information and convert accumulated points into cash. This amounts to an annual fee income for banks of approximately £50 per customer.  Banks have generally been slow to embrace the digital innovation customers now expect from other industries, such as retail or travel. This needs to improve if banks are to hold on to their existing customers and attract the next generation, as the quality of a bank’s digital offering will become an increasingly important factor for consumers.

Despite customers’ appetite for new and innovative digital banking offerings,  the majority of banks still only provide basic mobile and internet banking services. Banks are clearly missing a trick if they don’t start to invest in their digital offerings and only see digital as a way to reduce costs.

The lack of investment is perhaps even more surprising considering banks are struggling to grow revenues at a time of increased regulation and a difficult economic environment. Digital products are a significant opportunity for banks to grow revenues and serve their customers in a way that they want.

The research reveals that more consumers are using online and mobile channels to access financial products. 69% of those surveyed said they use the internet to purchase financial products. While a lower number of respondents (33%) use their mobiles to purchase financial products, mobile banking is expected to follow a similar usage curve to internet banking. In terms of customer profile, it is not surprising that people born in the 1980s and 1990s [Generation Y] lead the way, with 67% of respondents saying they currently use or are considering using mobile channels for banking.

To grow revenues and combat high customer inertia, banks need to focus on attracting the next generation of customers – which will be largely made up of Generation Y and the unbanked population. For these customers, a bank’s digital services will be more central to their decision-making process than branch location or even brand.

Banks need to take their digital products to the next level if they want to secure Generation Y’s custom as they expect a rich digital experience that is both mobile and social and integrates their banking needs with their digital lives. If banks are too slow off the mark, they risk being overtaken by new entrants or non-traditional financial services providers, who already place digital at the heart of their offerings.

Despite new technology opening up banking to a number of new players, there is little evidence to suggest that they will be successful in taking over the entire customer relationship from banks. The survey reveals that the majority of respondents (61%) still trust their banks over other providers to provide their current account. However, our report suggests that new entrants, such as mobile payment providers, will continue to act as a catalyst for change in the retail banking space. Banks may also need to partner with technology, mobile and other non-traditional banking providers in order to deliver the digital experience customers now expect.

The growth of digital has removed key barriers to market entry, including the need for large branch networks, customer inertia and brand trust. Banks need to consider strategic acquisitions or partnerships with digital innovators to secure their long-term position and market share. Incumbents in developing markets, where there is a larger share of unbanked consumers, will experience the greatest threat from new players if they do not improve their digital offerings.

The banks that provide a differentiated digital experience, with advice and relationship management elements tailored to the individual customer, will secure deeper engagement and more profitable relationships with their customers.

You can read the report and watch an accompanying video at:

Contact details
Email: Jo Leeson
Tel: 0117 928 1417

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