While digital-only solutions are not for every customer, online and FinTechs are capitalizing on unmet needs. One of these unmet needs is a need to cater to Millennials, who are less likely to use branches. Investment in mobile technology is becoming a necessity for many banks - especially those trying to attract Millennials. In addition, the cost of mobile transactions is significantly lower than those conducted at a branch.
FinTechs and online banks have taken advantage of unmet needs
Customers have increasingly moved to digital platforms, making it necessary for banks to rethink how they offer services. In order to remain competitive, banks must understand the needs of digital customers and shift from product-based to customer-based models. This means offering personalized, real-time services and products through preferred channels. However, traditional banks are also well-positioned to develop innovative solutions for customers.
Millennials are among the biggest user groups of online banks. They are digital natives who have a high expectation of convenience. As a result, they gravitate towards mobile services. A recent study by Economist estimates that 85% of millennials in the United States use mobile banking. This figure is expected to grow even higher for younger generations.
Investment in mobile technology is a requirement to attract Millennials
Today's millennials are tech-savvy, ambitious, and cautious. As a result, they want greater transparency and control over their finances, and technology is the way to address their concerns and fill the confidence gap. Businesses in any industry should invest in mobile technology to appeal to this future generation.
The growing numbers of millennials in the workforce are creating a need for innovative IT solutions. While traditional technologies may appeal to older generations, Millennials prefer mobile-first environments and expect mobile-first experiences. They want a work-life balance and a sense of meaning.
In addition to investing in mobile technology, companies should invest in collaboration and communication tools. More than half of survey respondents see these investments as a necessity to attract the next generation. And more than half of those companies plan to increase their investments in such tools in the coming year.
Cost of mobile transactions is much lower than in-person transactions at a branch
Cash management is becoming increasingly relevant in regions with high labor costs. While cash is no longer as high a share of total payments as it once was, it is still a significant portion of total costs for banks. Cash costs account for five to ten percent of bank operating costs and are increasing in absolute terms in most markets. Lean operations and the right-sizing of branch and ATM networks can help banks manage these costs.
The cost of mobile transactions is significantly lower than in-person transactions in branches. The cost of a mobile transaction is about 10 times lower than that of an in-person transaction at a branch. However, mobile payment options are not perfect. Some merchants may refuse to accept payments by phone or in person, but this is not the case with all mobile payment options.
Integration of mobile channels into existing business models
The shift to digital transactions and digital-only competitors has prompted traditional banks to rethink their branch footprint. Some have opted to reduce their physical presence in an effort to improve efficiencies, while others have reconsidered the best ways to leverage existing branches. Regardless of the approach taken, timing is crucial. As non-traditional competitors continue to steal share, traditional banks must make smart investments to remain relevant and competitive.
One area where banks should focus their attention is in adjacent markets. If they have a large share in the market, integrating mobile channels into existing business models may be a viable way to expand their reach and offer new services. In the United Kingdom, for example, nearly 60 percent of auto-insurance policies are sold through aggregators. Bank Bazaar, a pure-play financial supermarket in India, offers over 50 services and has 23 million customers.