Approximately 69% of consumers in the United States use a traditional brick-and-mortar bank, but the rise of neobanks and fintech companies threatens to lower this share. In a survey of 2,068 adults, 30% reported that they had used a digital-only bank in the past or expected to use one in the future, and 8.8% of respondents said that they planned to open a neobank account within the next few months.
If you run a traditional brick-and-mortar bank, you need to be ready to compete with neobanks, fintech companies, and other digital banking options. So, how do you stay relevant as consumer preferences shift to digital banking models? Keep the following in mind.
1. Provide Easy-to-Use Digital Services
Most consumers who switch to neobanks do so because of the ease of using digital services. They can deposit checks, pay bills, and apply for loans through an app on their phone, and they don’t have to ever worry about driving to a branch or waiting in line. To stay relevent, you need to offer your customers a competitive suite of online banking services.
2. Support Existing Customers
Although consumers are shifting their attention away from traditional banks and toward digital-only financial institutions, consumer paralysis in the midst of the coronavirus has slowed this trend. Analysis of major European neobanks indicates an 18 to 36% reduction in new sign ups during the pandemic.
To take advantage of this phenomenon, make sure you are providing your customers with the support they need both in relation to financial services and to their health and safety in the midst of a global pandemic. If customers feel like their needs are being met especially during stressful times, they become less likely to stray.
3. Be Aware of Psychological Barriers
In addition to working on keeping your existing clients, you may also want to try to siphon customers away from digital-only banks, but you need to be aware that most consumers are hesitant to switch banks.
Over time, people develop a lot of loyalty for their banks, and they feel like moving to a new bank will lead to losses. If you want to encourage customers to switch from a digital-only bank and to your institution, you need to guide them past this psychological barrier by promoting useful services and using accessible language. Then, leverage loyalty rewards to maintain their patronage.
4. Reach Out to Underserved Consumers
When possible, make a bid for the customer base that traditionally migrates to neobanks and fintech companies. Often, these consumers are underserved by traditional banks, and they want online banking services, tools to help them save money effortlessly, more expansive loan offerings, and low-cost international transfers.
Although these customers may not bring huge profits to your financial institution right away, the value of their business can add up over time.
5. Market to Millennials
You may also want to focus on marketing that reaches out to millennials in particular. The biggest digital-only banks in the country report that their main customer base is millennials or people between the ages of 25 and 40.
6. Offer Competitive Interest Rates
One of the biggest reasons people choose a bank or switch banks is competitive interest rates. Are the rates on your loans and savings accounts attractive? Can you improve your rates to increase business? Ask these questions constantly and adjust rates as needed.
7. Increase Loan Approval Rates
On top of shifting interest rates, you may also want to examine the criteria you use to assess loan applications. One of the main reasons fintech companies have claimed traditional banking customers is because they tend to have higher loan approval rates. To increase the number of loans they can offer, these companies look at more data points for each customer, and the risk assessment models they use assess risk tend to be more accurate than just looking at credit scores, income, and other traditional metrics.
8. Promote Traditional Services
Although many consumers demand the convenience of digital banking, many still prefer traditional banking services. They want to go into a branch, deposit checks to a smiling teller, or talk with loan officers directly. They crave a personable experience and don’t want to just engage with an app.
As you compete with digital banks, don’t just focus on making your bank more digital. Also remember the core advantages of brick-and-mortar financial institutions and promote these benefits to prospective customers.
9. Improve Online Security
Finally, if you are enhancing your online banking services, you need to ensure your customers that you have a safe digital environment. Talk about your security efforts in your marketing materials and newsletters. If you haven’t suffered a data breach in a significant amount of time, let prospective customers know about your safety record, and remind them that you have tools in place to keep their money and their information safe from cyber criminals.
To compete with fintech companies and neobanks, you need to ensure that your bank is poised to offer high-quality, secure digital services to new and existing customers. At SQN Banking Systems, we focus on fraud prevention and detection so that our clients can move further into the arena of digital banking without worrying about security concerns. Contact us today to learn more about our anti-fraud solutions.