Digital-Only Banks: Threat or Motivator?

Digital-Only Banks: Threat or Motivator?


The emergence of digital-only banks has jolted incumbents into varying degrees of panic. On paper, their business model seems enviable. Operating costs are low, unburdened by old legacy IT systems and costly branch networks. Consequently, superior operating efficiency enables competitive pricing. In addition, newer technology infrastructure allows for a more sophisticated and capable digital banking experience for customers. Faced with this new challenge, it is important for incumbent banks not to forget what their customers actually want.

While digital-only banks do possess significant competitive advantages, recent launches have demonstrated they also face difficult challenges that technology or price can’t solve. The benefits of digital banking to the customer and provider make the broad direction of strategy fairly simple: digitize.

The key question for banks is, to what extent? Do digital-only banks pose such a threat to valuable customer bases that wholehearted emulation is required? Or would digitizing selected parts of bank propositions be sufficient to mitigate the threat?

The report Digital-Only Banks: Threat or Motivator?, aims to assess the risk posed by digital-only banks, identify vulnerable customer segments, and highlight actions that incumbents could make to improve their retention prospects.

Key Highlights

  • One in three consumers globally indicate a willingness to transfer their primary banking relationship to a digital-only provider.
  • Consumers in India, Singapore, and Scandinavia are the most receptive to using a digital-only bank as their main current/checking account.

This report assess the threat posed by digital-only banks and highlights changes incumbents could make to their digital banking platforms to mitigate the risk by -
  • Analyzing the unique environments shaping demand across a range of different markets.
  • Identifying customer segments most at risk within affluence and generational bandings.
  • Highlighting the PFM tools and mobile banking features that are most in-demand.
Reasons to buy
  • Build a more targeted retention strategy
  • Make more informed decisions about investments in PFM tools
  • Determine which mobile banking features to implement first.

  • Executive Summary
    • Market summary
    • Key findings
    • Critical success factors
  • The Current Landscape Facing Incumbents
    • Demand for digital-only
      • Table Figure 1: Percentage of consumers globally willing to use a digital-only bank as their primary banking relationship
      • Incumbents in India and the Nordic markets are most at risk from digital-only challengers
        • Table Figure 2: Percentage of consumers willing to use a digital-only bank across different geographies
        • Table Summary of digital-only banks across markets
      • Digitally savvy millennials, generation X, emerging, and mass affluent customers are most at risk
        • Table Figure 3: Percentage of consumers willing to use a digital-only bank across generational and affluence customer segments
        • Table Figure 4: Percentage of consumers who prefer to use digital channels for main banking activities
      • The customer segments most at risk are the most valuable
        • Table Figure 5: Profiles of customer most at risk from digital-only providers: generation
        • Table Figure 6: Profiles of customer most at risk from digital-only providers: affluence
    • The perception of digital-only banks and the reality of the threat
      • At-risk customer segments believe digital-only banks offer better rates and digital banking functionality
        • Table Figure 7: Attitudes towards digital-only banks by vulnerable customer segments
      • At-risk customer segments cite innovation and poor digital banking functionality as reasons for switching provider
        • Table Figure 8: Reasons given for switching by customer segments most at risk from digital-only providers
  • What Should Banks Do?
    • Reduce the functionality gap
      • Mobile banking features that remove pain points in customer journeys are most in-demand
        • Table Figure 9: Level of demand for individual mobile banking features
      • Examples of new mobile banking features
      • Offer PFM tools that provide financial clarity and help customers achieve their goals
        • Table Figure 10: Level of demand for individual personal financial management tools
  • Conclusion
  • Appendix
    • Definitions
    • Methodology
    • Bibliography
    • Further reading
    • About GlobalData
      • Table Figure 11: About GlobalData

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