Tech giants’ growing appetite in personal finance keeps bankers up at night
We all know that millennials spend a lot of time chatting with their friends on Facebook, Twitter, WhatsApp and Instagram. How much is a lot? According to a Nielsen study, millennials in the U.S. spend 2.5 hours a day on social messaging apps.
Messaging apps have changed the way all of us communicate with each other, but in recent years the messaging apps themselves have changed. They started off as just another app, alongside apps for gaming, music and utilities. Today, messaging apps are no longer just for messaging: they’re becoming a new platform for services, offering shopping, travel, gaming and even personal finance, replacing the old platform in which stand alone apps offered just one kind of service.
Why is this happening? It all starts with customer experience. Users enjoy the immediacy of social apps, and since they’re already spending so much time there – it only makes sense to offer them revenue generating services.
This shift in engagement means that messaging apps are winning customer attention, at the expense of all other stand-alone apps, that are losing engagement.
Bottom line: in today’s reality, having an app is simply not enough. Your app can be great. But if it’s buried among dozens of other apps on users’ devices – they simply won’t tend to use it frequently, and will be easily lured into a much trendier service on their favorite social app.
It’s important to understand the evolution of social messaging apps as the backdrop for the even more significant trend in the personal finance domain: the entrance of tech giants to the payments playing field. A quick glance at this timeline shows just how serious these companies are in penetrating to this arena:
When Amazon and Apple, two companies with a market cap of nearly $1 Trillion each, are launching a new payment solution, it’s more than just a new threat to traditional banking – it’s a real game changer. Their enormous market presence and extremely high customer engagement are expected to shake up the personal finance arena in markets where these services are introduced. It’s also worth noting how this tech involvement intensifies over time: while these companies were carefully dipping their toes in the water during 2017-2018, it seems that this year tech companies are going full steam ahead charging into the personal finance market.
So, how should banks address these dramatic market shifts? The first step is realizing that customer expectations have changed. Consumers today expect their services to be frictionless and streamlined into their digital lives. Google, Apple and Amazon are masters in perfecting the customer experience they deliver – this is something that’s rooted deep in their DNA. Which is not something that can be said on most retail banks. That’s why banks should go out of their way to find new channels that deliver a better banking experience. Competition used to be just between banks. Today banks are facing competition from the world’s most powerful companies, each bringing a solid customer base and a product or solution that has proven to be super-sticky.
In this fierce competition, banks have one main advantage: their reputation and trustworthiness. In a massive research by Accenture conducted in 2018 and covering 47,000 customers across 28 markets, 77% of respondents said that they trust their bank to look after their long-term financial well-being. They may complain about customer service, hidden fees and the waiting lines in the branch or on the phone. But the bank still holds its position as a trusted service provider. That’s why people feel more comfortable sharing using their bank’s app – even it delivers a limited experience – compared to sharing their credentials with 3rd parties over the web.
Accenture also warns banks not to take this trust for granted:
“Competition from non-traditional providers is increasing and the Pioneers (early adaptors) in our survey show a willingness to entrust their long-term financial well-being to these vendors. Financial services providers cannot afford to rely on customer inertia over switching, and competing on price would not be a sufficient competitive differentiator over the long term… To stay relevant and win loyalty in a digital economy, banks and insurers should harness consumer data to deliver a hyper-relevant, highly convenient and trustworthy customer experience.”
Banks should leverage the trust they’ve earned, and focus on embracing new solutions that drive customer engagement and create experiences that are aligned with those offered today by tech giants.