While two-thirds of Australians bank with the big four, there is an increasing trend toward customers moving to digital banks. In fact, among the 2.1 million Australians aged 18+ who are looking to change their main financial institution within the next six months, 67% are big four bank customers, of which 16% are looking to change to digital banks such as ING, ME Bank or UBank. This represents a 5 percentage point increase from June 2017 to June 2018.
Australians will soon have the ability to own their financial data, and have personal financial information easily accessible and transferable to other financial institutions, with open banking coming into effect on 1 July 2019. This may lead to more consumers switching banking providers and will allow for more competition and choice in the marketplace, and more control for the consumer.
Alongside advancements in technology, open banking has encouraged the progressive rise of neobanks in Australia, such as Xinja, 86 400 and Volt.
It’s important to understand the subtle differences between a traditional bank with a digital platform, a purely digital bank and a neobank. While the big four banks have digital platforms, such as online banking and mobile apps, most digital banks, such as ING, ME Bank or UBank, transact online with no bank branches, but are owned by major financial institutions, such as NAB, ING and industry super funds.
Neobanks are 100% independently-owned, digital banks, meaning there are no physical, bricks and mortar branches, no service centres, and sometimes not even a desktop banking option—making them purely mobile.
The trend toward digital banks is paving the way for neobanks to gain market share. While early adopters of neobanks have traditionally been millennials aged 18 to 35 (as seen across Europe), their customer base has rapidly expanded across 18 to 80 year olds for some brands in Australia.
Eric Wilson, CEO of Xinja commented: “While you could argue that millennials are a core audience for neobanks, and they make up 41% of our audience, nevertheless 36% of our audience is over 45, and 9% over 65. We believe it is just as much a question of mindset as generation. People are expecting a lot more than just ‘digital’ banks—digital is a given these days—what they are looking for is something that delivers an easy, frictionless and engaging experience, similar to those they have found in other next generation companies from other industries. They will also expect new business models built around customers’ interests—a ‘win-win’.”
A clear advantage has been that neobanks are able to put financial ownership in the hands of the consumer very easily and allow customers to potentially obtain better deals on banking, credit cards and mortgage product offerings, whilst enjoying a hyper-personal experience. For instance, some neobanks, have been able to shorten the process for being accepted for a home loan, utilise digital channels more effectively, and offer more tailored and valuable products to the consumer.
Digital banks and neobanks offer an attractive solution, demonstrating a cultural shift to customers driving the agenda. Ninety percent of Australians who are customers of digital banks are very or quite satisfied—with 22% more likely to be satisfied when compared to those of the big four bank customers.
Furthermore, 75% of Australian customers of digital banks, such as ING, ME Bank or UBank, would recommend their bank, compared with only 45% of the big four banks customers that would recommend their bank.
How will financial services attract new and existing customers as more innovative banking options become available? Exciting times lie ahead in the financial services industry as customers are eager to engage with their banking needs in new ways.
While the big four banks have acknowledged faults and are seeking ways to improve future engagements, neobanks are at the forefront and growing their customer base daily. Time will tell if the traditional banks are able to transition, and if customers will understand the nuances between digital bank brands, backed by well-established financial institutions, and neobanks. In the end, brand trust, engaged employees, innovation, and most importantly, customer experience will play a critical role.
The insights in this article were derived from:
- Nielsen Consumer & Media View, 2017/2018 Survey 05 National Database (July to June period)