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FICO Report Finds Consumers Are Expecting More Personalized Service from Their Financial Service Providers to Secure Their Financial Future

FICO

The survey demonstrates a dramatic shift in financial behaviors of primary bank and credit union customers since 2020

Highlights:

  • FICO today released a new report examining consumers’ shifting financial behavior and priorities.
  • 56% of U.S. banks and 69% of credit unions claim they are implementing digital transformation.
  • Banks must continue to evolve to match five specific areas to meet customers' new expectations: overdraft; saving and investing; buy now, pay later (BNPL); niche neobanks and open banking.

Leading applied analytics company FICO today released a new report examining consumers’ shifting financial behavior and priorities. While most consumers are happy with traditional banks and credit unions, the percentage of Gen Z, Millennial, and Gen X consumers in the United States that consider a digital bank to be their primary checking account provider has more than doubled, at 12% of customers since 2020. In fact, only 25% of Gen Z consumers use a megabank as the source for their primary checking account.

Consumers today expect financial providers to deliver a personalized experience with offers and solutions that help them secure their financial future. The report examines how traditional banks need to adapt to deliver better value to today’s digital savvy customer while highlighting specific fintech examples of tailored services to niche customers, such as helping them blend savings and investing together. While the report does not suggest that banks and financial institutions mimic the approach fintechs are taking, it urges them to change the way they think and alter their approach to be more customer centric.

“U.S. consumers are increasingly exploring new services from fintechs to meet their ever-evolving financial needs,” said Nikhil Behl, chief marketing officer at FICO. “The research shows that in order to keep up, there is an immediate opportunity for traditional banks to develop personalized digital offerings that create better, more engaging experiences for customers which translates into long-term loyalty.”

The report, Counterattack: Banks Field Guide to Fintech Disruption, compiled by Cornerstone Advisors and Nonfiction Research, looked at why US consumers are increasingly moving to fintechs, including specific financial products and services that were driving the adoption. This report identified five areas: overdraft; saving and investing; buy now, pay later (BNPL); niche neobanks; and open banking; as well as where U.S. fintech companies are gaining traction in the market and how banks need to adapt to remain competitive, such as implementing digital transformation strategies. The report also offers a unique perspective as to how banks should deal with the threats from fintechs, such as becoming more forward thinking about customer needs and expectations and not just relying on existing revenue streams, refining or designing new features that address longstanding customer issues, and using trial and error to deliver more relevant products and services.

The research noted that 56% of U.S. banks and 69% of credit unions claimed that they had launched a digital transformation strategy, and 55% of those institutions claimed they were at least 50% of the way through their implementation of that strategy.However, seven in 10 banks and approximately three quarters (76%) of credit unions said they don’t plan to replace their core systems as part of their digital transformation.

“While banks are responding to fintechs, too much of the focus has been on making incremental improvements to existing products and service,” said Ron Shevlin, managing director of Fintech Research at Cornerstone Advisors. “Banks need to build capabilities and competencies around analytics and personalization to counter the threats from new product and service offerings.”

The research indicated that banks have an opportunity to counter the following five specific competitive threats by U.S. fintechs:

  • Regarding overdrafts, U.S. neobanks have made fee-free overdraft protection a central and highly visible product feature, with Chime as a neobank that offers a feature called SpotMe, which covers up to $200 overdraws on debit card purchases and/or cash withdrawals for eligible customers.
  • Regarding saving and investing, the two most popular fintech apps that consumers use to automate savings or encourage them to save more money as well as invest are Acorns and Stash, as they combine automated savings capabilities with portfolio and fractional stock investing that emphasizes diversification and encourages long-term investing over day trading.
  • Regarding the explosive popularity of buy now, pay later (BPNL), the percentage of Gen Zers making purchases with BNPL plans grew six-fold between 2019 and 2021 – from 6% to 36%.
  • Regarding niche neobanks, the next generation of consumer-facing fintech companies is focused on a specific segment of consumers that share a common set of functional and emotional needs when it comes to money.
  • Regarding open banking, or the ability for consumers to share data from their financial accounts and providers to enable other products or experiences, 76% of consumers consider being able to connect their accounts to apps as a top priority, and 69% would switch banks to do so.

“The good news is that our research revealed that banks don’t need a wholesale digital transformation; they can pick their battles when it comes to answering threats,” added Behl.

For more details and insights regarding the survey results:

About FICO

FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, telecommunications, health care, retail, transportation and supply chain, and many other industries. Using FICO solutions, businesses in more than 120 countries do everything from protecting 2.6 billion payment cards from fraud, to helping people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right time.

Learn more at http://www.fico.com.

Join the conversation at https://twitter.com/fico & http://www.fico.com/en/blogs/.

For FICO news and media resources, visit www.fico.com/news.

FICO is a registered trademark of Fair Isaac Corporation in the U.S. and other countries.

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