Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Big banks at global ‘inflection point’ as challengers play to their strengths
Big banks, both here and overseas, need to better leverage data and create deeper relationships with their SME clients if they’re to stave off the challenge from neobanks and challengers according to insights gleaned from a study conducted by researcher Pollinate.
Traditional banks have an opportunity to win “primacy” in the lucrative SME market, the research says, and retain their majority share of the $850 billion in global banking revenues it represents. However, a few changes have to made in light of the value propositions new market entrants are bringing to the market.
New, digitally-focused players in the banking scene prioritise engagement and relationship building, Pollinate’s SME banking’s inflection point report states, and are 75 per cent more likely to place these factors higher than banks as their core purpose.
“Traditional banks have different views to challenger banks and neobanks on their role and purpose when serving SME markets,” it explains. “Their pieces may be on the same board, but they are playing different games.”
It’s a common dynamic across ell enterprise, but one that’s becoming more stark in modern day banking; the large, incumbent corporate entity leans on its infrastructure, data capabilities, product offerings and capital backing while the smaller players appeal through their relationship building, technology and agility.
The Pollinate study saw the researchers speak with just under 1,000 decision makers for banking and investment firms across the US, Canada, Australia and a number of countries through Europe, Latin America and Africa in early 2022.
Smart data usage
A core issue for the banks, the study reveals, is that while they access to huge tranches of client data they aren’t able to make that data work effectively for them.
“According to 65 per cent of traditional banks, one of their key strengths is collecting data and there is broad recognition of the power that comes from harnessing it, especially in delivering experiences to complement their current product advantage,” the report explains.
Better use of data would deliver “more personalised customer experiences” and “improved cross and upsell of wider banking products and services”, as well as decreasing loan risk and providing a competitive advantage that drives acquisition.
“However, there is a traditional bank disconnect between areas of investment and the importance attributed to data and insights.”
The report provides an example: only 18 per cent of traditional banks identify “changes in user expectations” as a strategic priority, as opposed to 32 per cent for neobanks and challenger banks.
Product over-focus
Big banks have a myopic tendency to focus on product at the expense of myriad other value-added services, the report explains.
81 per cent of traditional bank budgets are allocated to products, compared to only 19 per cent that is devoted to experience-led services.
Traditional banks make the right noises, with value-added services like business management tools actually ranked as the most important capability. But that intent doesn’t translate to investment.
“While traditional banks recognise the potential impact of experiences on customer acquisition, retention and growth, their investment doesn’t reflect this, as it is primarily product focused,” the report states.
Spending on value-added services at neobanks is slightly higher at 21 per cent.
Fintech buddying
To combat the growing gap between traditional banks and their contemporary challengers, incumbents are increasingly looking to form partnerships with other fintechs. Ninety-six per cent recognised the need to work with “capable fintech partners”, with 21 per cent of those citing the ability to deliver services faster than in-house departments as a key benefit.
There are hurdles for the banks in forming these relationships, however.
“Banks don’t enter fintech partnerships lightly, due to the financial, reputational and compliance risks they must manage, and because they need partners who can negotiate the complexities of organisational systems in banking to deliver results.”
Accordingly, if they are to pair up with a fintech it must have a “deep understanding” of the bank’s needs.
“Banks expect fintech partners to go far beyond a transactional relationship,” the report states. “The banks’ perspective favours smart partnerships, which go beyond technology implementation to also supporting business success.”
