Payment innovation has ended traditional bank relationships | PaymentsSource
The era of the primary bank is over. Consumers don’t restrict themselves to a single checking account. They don’t designate one payment card as their universal, top-of-wallet choice.
They rarely close existing bank accounts, but, thanks to the convenience of digital account opening, they open new ones all the time for all kinds of different reasons.
According to research from FICO, 34% of U.S. consumers already have accounts or engage with non-bank financial services providers, including fintech startups, big tech companies, and merchants. Furthermore, 70% of consumers say that they would be “likely” or “very likely” to open an account at a new provider if that provider offered products and services that addressed their unmet financial needs.
The old rules no longer apply. Banks can’t count on a trusted brand, a direct deposit relationship, and good old fashioned inertia to keep retention rates high. Every day is a fight for every customer’s attention, trust, and (ultimately) business.
Consumers are increasingly working with fintech companies, merchants, and big tech companies to address core financial needs. Contrary to what banks may believe, this activity is not restricted to specific customer segments (although it does skew younger) or product categories. Every part of the traditional bank product stack is under attack.
The first step for banks, in countering this trend is addressing the vulnerabilities that these non-bank companies are attacking.
Digital Account Opening. Between July 2017 and July 2020, digital banks’ share of checking account applications tripled from 6% to 18% and megabanks’ share jumped from 36% to 51%. Regional banks, credit unions, and community banks all lost market share.
The common denominator for companies that gained checking account market share between 2017 and 2020 is an exceptional digital account opening process. This isn’t a coincidence. Any organization that doesn’t have an exceptional digital account opening process for the products it wants to sell will be at a severe competitive disadvantage.
Default for Emerging Payments. The quest for “top-of-wallet” status has been made more difficult in recent years as the idea of a “wallet” has evolved. As that evolution has accelerated, banks have started losing ground. Across mobile payments, merchant mobile apps, cryptocurrency exchanges, and buy now pay later loan providers, a quarter of a trillion dollars — $252 billion — is estimated to be flowing through non-bank payment mechanisms. Recapturing this volume is critically important.