How can banks transform for a new generation of customers?

Most consumers still choose banks for their PFRs today. But neobanks have gained a foothold across generations. Among all global consumers, 27% have relationships with neobanks, with the highest rates of adoption in the Asia-Pacific region and Latin America. While incumbent banks still maintain an edge, FinTechs are capturing more of consumers’ daily operating cash flows.

Among consumers who have chosen neobanks for their PFR, 20% are aged 25-34 and 11% are aged 65 or older. The rates of adoption are well balanced across other age segments.

A growing number of financial relationships

Consumers are also diversifying their financial services relationships. Consumers that choose global or national banks for their PFRs maintain an average of 2.5 relationships with financial services firms. Consumers whose PFRs are with neobanks have an average of 3.0 relationships. This fragmentation shows that consumers have concluded that no one firm is likely to meet all their needs.

As with the lengthening tenure of neobanks’ customer relationships, consumer willingness to maintain multiple relationships is a clear competitive threat to incumbents, which now must compete on multiple fronts, including both products and experiences. Banks should feel some urgency as neobanks continue to build on their existing edge in digital payments. In response, traditional players may explore partnerships with FinTechs and big tech to develop the offerings and experiences younger consumers are looking for. There is also opportunity for incumbents in that consumers would like to see banks serve as the unifying point of all of their financial relationships, as we discuss in chapter 3. 

Neobanks have gained traction with consumers largely because of the superior products and personalized experiences they offer. As important as these offerings are within financial relationships, trust is a critical factor, too. Indeed, trust has become a crucial front in the battle for relationship primacy, especially since consumers show a greater willingness to maintain multiple financial services relationships.

When it comes to trust, incumbent banks are still operating from a position of strength. First and foremost, consumers have high degrees of trust in the firms they choose for their PFRs. Vast majorities of consumers completely or mostly trust their PFRs, ranging from 72% of UK consumers to 92% of Chinese consumers. The global average of all markets is 82%. Looking across generations, in most of the countries we surveyed, Gen Z consumers had notably lower levels of trust in their PFRs than any other age group. 

Why consumers trust banks also favors incumbents. Trustworthiness and personal relationships are the most important drivers of trust in PFRs, and for all financial services brands. These particular trust drivers are almost universal ­– that is, they matter to consumers in markets around the world, as our survey results show.

Consumers trust traditional banks and neobanks for different reasons, which suggests that the PFR landscape will remain dynamic for some time to come. For incumbents, that raises the question of defining the best relationship to neobanks – collaboration, competition or both?

Looking at regional variations, having a branch nearby is a top-three factor of trust for PFRs and all financial brands in all Asia-Pacific markets. In contrast, consumers in the US and Germany did not rate branch proximity as a top-five trust factor.

Still, banks have some inherent advantages relative to trust, including long-term relationships and consumer preferences to turn to banks when they need financial support during key life events (e.g., buying a home, saving for college, planning for retirement). That is part of the strong legacy of trust banks must build on as they seek to strengthen relationships with consumers and future generations of customers in particular. 

The survey results indicate consumers’ growing preference for “super apps” for their banking needs. Super apps combine multiple financial services (e.g., checking and savings accounts, investments and payments) via one app or digital experience. Typically, super apps have a higher degree of integration and customer-centricity than typical banking ecosystems, which enables them to serve as consumers’ personal financial operating system (OS).

Beyond “one-click” or “one-tap” access to a full range of services, super apps provide next-best-action recommendations and offer additional support for every action taken in any part of the ecosystem. In contrast, many banking ecosystems simply provide mobile or online access to the same services available in branches and point users to external third-party providers (e.g., travel companies) without fully integrating the experience. In other words, while every super app is an ecosystem, not every ecosystem is truly a super app.

Reflecting the competitive dynamics of today’s market, the higher number of financial relationships can be viewed as a challenge to boosting share of wallet. However, neobanks see an opportunity to become super apps by making it easier for consumers to maintain multiple relationships (e.g., through payments solutions that integrate across accounts). Neobanks that play this aggregator role can develop “core” services on top of the baseline integration. Their business models are designed so that they benefit when customers connect other financial relationships via apps. Those benefits are both direct (neobanks don’t have to originate all products) and indirect (through access to transactional data). Today, most incumbents cannot monetize those outside relationships and need to adjust their business models if they want to in the future.

Integration is the keystone

However, the research indicates that major banks are best positioned to create and benefit from super app ecosystems. In fact, within key markets, consumers expressed a strong preference for traditional banks over neobanks when it comes to developing ecosystems. That demand seems particularly strong when it comes to the critical need of protecting consumer data, where incumbent banks have a trust advantage. Some super apps may also turn to banks for access to banking licenses and to meet other regulatory requirements.

The rise of super apps reflects the reality that consumers want seamless integration of financial services within their lives and across multiple providers. It’s notable that integration is extremely or very important to majorities of consumers no matter their choice of company for PFRs. Interest is highest among consumers that maintain between three and five financial services relationships.

The overall interest in super apps is highest in most Asia-Pacific markets, though consumers in Australia and New Zealand indicate a below-average interest in super apps. Interest is similarly lagging among consumers in Germany, France and the UK. Interestingly, consumers who trust their PFRs are most likely to be interested in super apps, suggesting the depth and breadth of market interest). At the same time, people who are interested in super apps are also most likely to change their financial behavior coming out of the pandemic

Conversely, those who are already using super apps are least likely to change their behavior when COVID no longer impacts daily life. This is clear evidence that consumers are looking for new solutions and are open to working with more providers if that’s what it takes to meet their needs. Consumers globally are interested in their most trusted financial providers – often incumbent banks – leading the integration with other services.

In EY’s view, these findings confirm that banks must carefully consider the emergence of super apps and how they will shape strategies for customer acquisition and daily interaction. This is not to say that all banks should strive to become super apps. In some cases, the best approach may be to connect to super apps or even participate in their ecosystems. Whatever they do, they must clearly communicate to consumers the value of these offerings.

For banks to become consumers’ personal financial operating system (OS) banks, they must integrate services within personalized and intuitive ecosystem experiences. The goal must be to build comprehensive, immersive, interactive and connected digital ecosystems using all available data about consumers’ financial lives, goals, social styles and personal preferences to produce insight and promote daily decisions that lead to improved financial wellbeing.

Winning with financial services ecosystems requires understanding what consumers want. Strong privacy policies and features (e.g., ID theft protection, control over data usage) are consumers’ top priority in terms of influencing purchase decisions. Privacy in the context of personalization and fee transparency are especially important.

But benefits associated with payments (e.g., marketplaces) and rates (e.g., bonus points, cash-back) also matter to consumers. The key is to customize these benefits; generic offerings no longer attract attention. In consumers’ eyes, the best products are those that offer the most valuable features in terms of specific needs and preferences. Thus, banks need personalized communication to clearly convey how products meet customers’ needs and satisfy their objectives.

The research shows that personalization features that help maximize functional benefits linked to products, such as loyalty programs, are most valued. Younger consumers care more about personalization than older groups, with 81% of Gen Z consumers around the world identifying it as a feature that could deepen their relationships, compared with just 47% of consumers over age 65.