One in five European customers who switched banks in the past five years has moved to a digital provider, according to Kearney’s latest European Retail Banking Radar.
The report highlights the growing challenges faced by traditional banks as fintechs continue to gain ground, particularly among younger, tech-savvy consumers.
The report reveals that while traditional banks are benefiting from customer loyalty – over two-thirds (73 per cent) of European bank customers have remained with the same primary bank for at least five years – digital banks and fintechs are quickly gaining traction. Younger consumers, in particular, are driving this shift, with 35 per cent of digital banks’ primary clients under the age of 35 and 55 per cent under the age of 45.
Word-of-mouth recommendations and financial incentives were the top reasons for customers switching banks, with 52 per cent of respondents citing these factors. However, a third of those who switched (33 per cent) pointed to poor customer experience as a key reason for leaving their old bank.
Kearney’s research also found that when consumers change their primary bank, they are likely to move additional products such as mortgages and investments. Of those who switched, 76 per cent transferred at least one other financial product, with 44 per cent moving two or more.
Loyalty tested
Despite the loyalty many traditional banks still enjoy, fintechs are posing a growing threat. The report indicates that one in 10 customers now holds their primary account with a digital bank or fintech. Younger generations, attracted by flexibility, innovation, and the tech-driven features offered by fintechs, are particularly inclined to trust these platforms with their finances, with nearly half (48 per cent) of digital bank users keeping 80 per cent or more of their finances in these institutions.
In the UK, where 15 per cent of respondents changed their primary bank in the past year – the highest rate in Europe – the trend toward digital banks is even more pronounced.
With the decline in the number of bank branches and fintech providers like Revolut gaining credibility, UK customers are increasingly exploring alternatives to traditional banks, reveals Kearney. Additionally, 63 per cent of British consumers hold accounts with multiple financial providers, underscoring their openness to diversifying their banking relationships.
Roberto Freddi, partner at Kearney
“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,” said Roberto Freddi, partner at Kearney. “They should be particularly careful about their younger customers, who are choosing fintechs for their flexibility and innovative offerings.”
He also suggested 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,” Freddi also commented.
The post Kearney Report: Fintechs Gain Ground as Traditional Banks Face Growing Challenges appeared first on The Fintech Times.
