Customer loyalty protects traditional banks from fintechs gaining ground, finds Kearney

Nearly three-quarters (73%) of European bank customers have kept their primary account with the same financial institution for over five years One in ten people now have a primary account with a digital bank or fintech   Leading consultancy Kearney has released the latest data from its annual European Retail Banking Radar, finding that more than two-thirds (73%) of European bank clients have kept their primary account at the same institution for five years or longer. Customer loyalty is therefore helping incumbent banks stave off competition from digital banks and fintechs who are quickly gaining ground. “By looking at the data, the Romanian clients may seem, on average, less loyal to their bank compared to their European peers. One in five Romanians work with at least three different banking institutions, while in Europe the ratio is around one in ten.” mentioned Alexandra Velescu, Principal in Kearney’s Bucharest Office. “The Romanian customers are pragmatic and price sensitive, cherry picking the most suited product for each of their financial needs, even if this implies working with several financial institutions. However, it is also a matter of supply. Now, neither traditional nor digital banks in Romania offer a complete product suite. For instance, digital banks don’t offer yet mortgages, while traditional banks don’t match the seamless multicurrency payments experience offered by the digital banks.” explained Alexandra Velescu.   Word-of-mouth and financial incentives are driving change   For consumers who have switched banks in the last five years, word-of-mouth (52%) and financial incentives (52%) were their two top reasons for making the change. Notably, a third of respondents (33%) also pointed towards poor customer experience as their reason for switching banks.   If clients change their primary current account, the study found that they are likely to move other products as well. From those who have recently switched banks in Romania, 78% took at least one additional product with them, typically savings accounts or credit cards. One third (33%) transferred their primary account, along with two or more products, to their new banks. This confirms that traditional banks need to beware their revenue from high value products.   Fintechs pose a growing threat to traditional banks   One in five (19%) respondents who changed their primary banking relationship in the past five years have switched to a digital bank or fintech.   With one in ten (9%) European customers now having their primary account with a digital bank or fintech, challengers are rapidly gaining scale and beginning to rival some of their traditional peers in size.   "In Romania, we definitely see a high interest from customers in digital banks. According to our study, almost 4 out of 10 banked customers work with a digital bank, and one-third consider the digital bank to be their main bank. With over 3 million customers, it is already well known that our country represents the second largest market in terms of portfolio size for Revolut globally. Additionally, Salt Bank, the first 100% Romanian digital bank, has surpassed 250,000 customers within only five months of its launch," added Alexandra Velescu.   According to the study, younger clients are particularly likely to have their primary relationship with a digital bank or fintech, perhaps because many features of their products resonate with more tech-savvy consumers. Specifically, 35% of digital banks’ primary clients are under 35, and over half (55%) are under 45, highlighting the appeal of these platforms. Kearney’s research reflects a considerable level of trust in modern banking, with half of the respondents (48%) who have a primary relationship with a digital bank keeping between 80% and 100% of their finances at these institutions.   Takeaways   While incumbent banks are benefitting from customer loyalty across Europe, there are clear signs to suggest that they must not take this loyalty for granted, as more and more people decide to switch to digital banks. They should be particularly careful about their younger customers, who are choosing fintechs for their flexibility and innovative offerings.   There are several moves that these banks can make to successfully navigate the changing landscape, including investing in digital capabilities, focusing on consumer experience, offering financial incentives, or creating their own digital brand. Some banks are already breaking free of the limitations of legacy systems and complex processes, and experimenting with new technologies, such as open banking, to provide an alternative option for more tech savvy clients.   Methodology   The Retail Banking Radar is based on the segment reports of European banks and reflects actual figures as reported by individual institutions. Additionally, direct customer research is conducted on selected topics – this year, on channel use for banking products, customer loyalty, and the size of the threat from digital-only banks and fintechs – by surveying 500 respondents with representative demographic profile per country.   About Kearney   Kearney is a leading global management consulting firm with deep-rooted expertise in strategic transformation. We work with more than three-quarters of the Fortune Global 500, as well as with government bodies and non-profit organizations. As a global consulting partnership in more than 40 countries, our people make us who we are. We’re individuals who take as much joy from those we work with as the work itself. Driven to be the difference between a big idea and making it happen, we work alongside our clients to regenerate their businesses to create a future that works for everyone. To learn more about Kearney, please visit www.kearney.com.