Digital financial services have sped up the business community. Payments are faster across the economy and customers can manage their finances easier than ever before.
However, with every innovator looking to disrupt the norm and solve the world’s problems, there are stoic institutions refusing to change their ways. The banking industry is a strong example of this. Few areas of the American economy exhibit such stark contrasts between dramatic innovation and determination to maintain the status quo.
It’s time for a change.
Check out these five trends affecting financial service providers in 2018 and how consumer behavior is forcing them to innovate.
Banking Continues to Move Online
Gone are the days where customers were wowed by an app or impressed by the ability to deposit checks online. Americans across all walks of life have embraced digital financial services in favor of traditional brick and mortar banking.
According to Bank of America, 62% of customers cited digital services as their primary banking choice in 2016, up from 51% in 2015 and 47% in 2014. This data shows that more people are embracing online banking and digital adoption is unlikely to slow down.
Digital financial services should be the primary concern of your financial institution because more than two-thirds of your customers are going to use them in 2018. If you can’t keep up with digital demand, the people are likely to take their business elsewhere.
Fewer American Consumers Use Paper Money
Along with online banking, Americans continue to move all of their payment processes online. According to US Bank, 50% of people carry cash on them less than half of the time they are out, and 76% say they keep less than $50 on them.
This data points to growing digital payment trends. Not only are people more likely to pay with a credit card instead of cash, they’re also using apps like Apple Pay or Venmo to complete their transactions. When asked whether they prefer to pay via cash or an app, 47% of people say they prefer to pay with an app.
The cashless trend applies to both consumers and businesses. Just last month, Bluestone Lane, a cafe in downtown Philadelphia, made national headlines for no longer accepting cash. Every payment is digital, which speeds up transactions and ensures a balanced till.
Banks Need to Provide More Services
In the same way that American workers change jobs instead of staying loyal to the same company until they retire, more people are questioning their banks and looking to change. More than 10% percent of Americans changed their banks last year and continue to look for a financial service provider that meets their needs.
One way that banks can modernize in a world of disruption (especially when hundreds of startups are looking to take their market share) is by offering more customer services to help with financial literacy and planning. When asked what services banks could offer to make customers change loyalty, some of the top answers included:
- Helping the car buying process
- Simplifying the home buying process
- Helping proactively pay and manage bills
Currently, customers consider working with their bank on major purchases a long and frustrating process. If banks can provide resources and be a source of help instead of pain, then customers might be more willing to stick around.
FinTech Startups Will Find Ways to Disrupt
The FinTech industry is one of the fastest-growing in Silicon Valley. Some believe 2017 was a record year for FinTech investment. In the second-quarter alone, there was $5.2 billion invested across 251 deals by venture capital companies. This was a 19% increase over last year. Not all of these financial startups will become the next “Uber for Banking” or “Airbnb for Investments,” but a few are likely to give the big banks a run for their money.
Unfortunately, most banks don’t seem ready to put up a fight. Only 7% of financial institutions say they’re very prepared to innovate and meet the challenges of modern digital financial services; however, 28% say innovation is very important to succeed. The desire is there, but banks don’t have the resources to execute it.
No One Can Escape Blockchain in 2018
Blockchain and cryptocurrency continue to be major buzzwords in 2018, with everyone including Kodak film trying to break into the market. Cryptocurrency (like Bitcoin) is a form of digital payment that increases and decreases in value. A few years ago, one Bitcoin was worth a few hundred dollars, today it is worth thousands. Blockchain is simply the process to tracking cryptocurrency (or any data for that matter) to keep a record of transactions together.
Industry experts as a whole are nervous about the cryptocurrency trend. According to PricewaterhouseCoopers, 56% of financial providers understand the importance of blockchain and cryptocurrency, but 57% say they are unsure about or unlikely to respond to this trend. While they might be able to watch this trend in the short run, they might regret failing to innovate in a year or two.
Innovation is key for banks to survive the digital revolution. Those that change to meet the needs of their customers in 2018 will continue to grow while others flounder.