British multinational professional services firm, Ernst & Young (EY), recently published its Bank Relevance Index (BRI). The data shows how banks’ "decreasing relevance has consumers straying to bank alternatives."
“The BRI is the engine behind EY’s most extensive research survey into consumer banking behavior and trends, due out later this year.”
- Ernst & Young
The BRI explores how customers use banks, and how they want to use banks in the future. It takes into account current bank roles, consumer trust in banks, and whether they would consider nonbank providers for various financial products and services.
EY surveyed 55,867 banking consumers in 32 countries globally to build the report: “The survey measures the full impact of the market forces and disruptive trends shaping banking today, and the steps banks must take to secure a successful future.”
The Index uses a bank relevance score from 1 to 100. A perfect 100 indicates that customers would trust and use banks for all their financial needs, zero means customers would only use bank alternatives.
The 2016 BRI shows that the global average bank relevance score is 75.1. “The index shows that the struggle to stay relevant varies by market," the firm states. “No country is immune to waning bank relevance."
Consumers trust banks the most in the Nordic countries such as Finland. In Asia, including China and India, banks are much more vulnerable to decreasing relevance.
The firm found that “more than 12% of consumers in Hong Kong and 6% in Singapore already name a nontraditional bank as their primary financial service provider.”
“Asian banks are more vulnerable to decreasing relevance, as demonstrated by low scores in Indonesia (66.9), China (69.5) and India (71.1), likely due to the prevalence of mobile and nontraditional banking options and the evolving “unbanked” population.”
- Ernst & Young
The report explains that consumers trusted banks far more 30 years ago, when there was little competition. However, there are many banking alternatives these days, offering a wide range of financial products and services.
While most consumers still need core banking services, deposits and loans, the firm offers some “bad news” to the incumbent institutions, “Approximately half of all consumers would consider using a nontraditional bank for many products.”
The firm lists four key threats to bank relevance, starting with rapidly changing customer expectations and preferences. The second threat is a fast growing number of FinTech products and traditional banking alternatives that are easy and cheap to use.
Banks are also lagging behind many new competitors in digital services, accessibility, and customized products, EY warns. Finally, scandals involving banks have eroded consumers' confidence in banks in a major way.
Political campaigns, like that of US presidential candidate Senator Bernie Sanders, often focus on stopping such impunity, typically referring to the big banks as “too big to fail,” and that stating that they “must be broken up.”
“Banks must strengthen their relevance with the disruptive and convenient products customers want, while striving to rebuild the trust that was once an intrinsic component of the relationship.”
- Ernst & Young
To remain relevant, EY recommends that banks make some changes. The firm suggests promoting transparency in all transactions, and “proactively protect the customer from data, privacy, and cybersecurity threats."
An independent report by Deloitte states that banks' historical dominance is declining especially in the area of payments: "Growing fintech investment is fuelling unprecedented non-bank competition."
Deloitte’s UK head of payments, Stephen Ley, states that technology and regulatory advances have lowered the markets entry barriers: “We will see more non-bank players slowly, but surely, start to gain a greater presence in the market.”
“Many of the big tech companies are now able to offer customers easy access to alternative, lower cost funding, whilst having an army of loyal customers behind them, as well as scale and strong brands. If they’re able to make payments convenient, then customers and SMEs are likely to gravitate to them.”
- Stephen Ley, Deloitte’s UK head of payments
Survey results from Accenture's Global Consumer Pulse Research, released in September 2015, shows that 44 percent of consumers from industries across the globe would consider products and services from non-bank, non-traditional companies.
Moreover, 43 percent would also be open to products or services from other consumers: “We also estimate that competition from non-banks could erode a third of traditional bank revenues in North America by 2020.”
Among the numerous banking alternatives, are a variety of bitcoin based solutions. Bitcoin wallets like Airbitz and Mycelium now integrate third party exchange services like Glidera. Customers can buy and sell bitcoin directly from inside the wallet, providing easy access to the cryptocurrency landscape.
However, most new users will probably feel more comfortable with a bank-like service offering a full web-based wallet. There are a number of apps providing this option.
Despite being the third largest bitcoin-buying market, The US has the most options for bitcoin-based alternative banking solutions.
Boston-based Circle is the best-funded, having raised over $136 million to offer a consumer-friendly banking experience. Customers can send money via bitcoin, but denominated in USD, through text, email, or chat, with via their social-conscious wallet app.
Coinbase is the first and original bank like service provider, and raised slightly less than Circle. Where Coinbase lacks in social integration, it makes up in being useful in 34 countries. Most of Europe can use Coinbase just as easily as Americans can, although European alternatives also exist.
BTCC provides a popular wallet and exchange combination app in China, that has been downloaded millions of times. It handles all the basics; sending, receiving, and holding money, on top of being a full exchange. Bibao can also say the same. Yuan/bitcoin trading volumes dwarf the rest of the world put together, making the market extremely liquid.
BitFlyer covers the second-largest bitcoin market by volume: the Yen. The company recently invested in, and started to integrate with, one of the most popular mobile wallets, Breadwallet.
In South Korea, Coinplug saw a US$5 million investment last December. The company can now offer a full suite of banking alternatives to Koreans, and their okBitCards are for sale at thousands of 7-11 stores and other marts across the country.
India’s biggest exchange and wallet, Coinsecure, raised $1.2 million earlier this year, and has been pushing merchant adoption ever since. The company is starting to see some consistent trading traffic already.
The Caribbean is the one region that has had little choice but to look at bitcoin solutions. Access to alternative banking there is rapidly becoming a lifesaver as banks leave the region, in a trend the IMF calls “de-risking.”
Bitt offers several banking functions in the area, including remittance, and their debit card and smartphone app displays funds in the local currency. The exchange recently struck a deal with the Central Bank of Barbados to offer a digital Barbadian dollar, and Bitt also claims an ongoing 33% month-on-month growth.
According to the IMF, the de-risking trend is growing, and may encourage alternative banking from other countries and regions, especially those that are smaller and poorer.