United Arab Emirates, November 22, 2017 – Until recently, traditional retail banks were betting on nimble fintechs to up-end the industry.  However, established technology firms – Amazon, Apple, Tencent and others – have emerged as the bigger, more immediate threat to retail banking as we know it.  

Bain & Company, in its eighth annual retail banking study, partnered with Research Now to survey more than 133,000 consumers in 22 countries.  It found that across most countries at least half of respondents said they are open to buying a financial services product from a technology company.  This is particularly true in countries where the banking experience is more time-consuming and cumbersome.  For example, in India and Mexico, 91 percent and 81 percent of respondents, respectively, expressed a willingness to run their finances through major tech firms.  Interest is similarly high in countries that have long used non-bank payment systems, such as in China, where many consumers conduct financial transactions via WeChat.  Here, 88 percent of consumers said they would bank with a tech firm.

Technology companies have also earned a high degree of trust with consumers, according to the survey.  Among U.S. and U.K. consumers, specifically, PayPal and Amazon rank nearly as high as banks for trust with their money.

“In the Middle East, there is significant customer demand for digital interactions but banks have been slow to the game,” said Julien Faye, head of Bain’s Financial Services Practice in the Middle East. “The best players can jump ahead by innovating with their digital strategy, and push the Middle East to one of the leading regions in this field. The competition will be fierce, but there is a real opportunity to earn deep loyalty from customers by making their interactions with their banker as seamless as possible.”

“Fintechs have innovative products, but they struggle to build brand recognition or a distribution model that attracts many customers,” he added. “On the other hand, large technology firms already have digital prowess, established brands, and customer access, which provide an almost unassailable advantage in extending their corporate brands into banking.  Many also already sell payment services, credit cards and loans, so it’s plausible they will offer a suite of retail banking services in the near future.”

Meanwhile, traditional banks have battled to migrate transactions from the branch and call center to digital channels in an effort to reduce costs, meet customer expectations, and keep pace with non-traditional competitors.  Bain’s research finds that routine transactions done online or through mobile cost 20 times less than those that require bank staff.  In Mexico, for instance, the top five banks have an opportunity to take out more than $500 million in cost from traditional branch and phone channels by performing at the best domestic and international benchmarks.

But banks still have far to go.  Most survey respondents said banking apps and websites fall short of being convenient, multi-functional, and easy to use.  Only 45 percent of U.K. respondents said their primary bank’s website lets them do everything they need.  The share is even lower for banks’ mobile apps.

On the surface, it appears that mobile banking has plateaued.  The reality is that consumer usage of banks’ mobile apps has stalled.  However, mobile usage of non-bank apps for financial transactions is actually on the rise.  In China, for example, where mobile usage is enormous, 91 percent of respondents said they had used a third-party payment app, with the average user making nearly 10 payments over a seven-day period. 

Traditional banks have also barely touched some of the other technologies that have reached a tipping point in consumer markets. Specifically, virtual reality and personal voice assistants, such as Alexa, Siri and Google Assistant, have the potential to supplant bank call centers.  In the U.S., more than one-quarter of respondents said they would consider using voice-controlled assistants for their everyday banking. Just as intriguing is the 5 percent to 6 percent share of consumers in Australia, the U.K. and the U.S. already using voice assistants for banking; between one-fifth and one-quarter would try the technology for their banking in the future.

Banks that can accelerate the development of digital channels to handle more routine transactions – ultimately migrating them out of expensive branches and call centers – gain customer confidence and a cost advantage that will better equip them to compete with tech firms. 

“The more transactions that digital channels are able to accommodate seamlessly, the more customers will use them instead of the call center or branch.  And the reduction in ‘bad’ call and branch volumes allows banks to reinvest more to further improve digital channels, while reserving their employees for the thorniest problems,” said Faye.