Faced with changing consumer expectations and rapidly evolving technology, the last ten years have seen banks lose market share, in particular to digital payments providers.
In losing customers to payment providers, banks also risk losing one of the twenty-first century’s most valuable commodities, data. Technology facilitated payments generate rich customer data that can be analyzed and turned into powerful insights and business intelligence. With research suggesting that banks could be losing up to a fifth of customers to poor customer experience, it’s clear that banks need to adopt new strategies to match the offer presented by digital first and UX driven payment platforms.
The business I lead is focused on giving banks the tools they need to truly harness their data and transform their customer experience. To understand the state of play in the market currently, and get an insight into the kind of questions keeping America’s banking leaders up at night, we surveyed several hundred banking executives recently. The results reveal the huge opportunities there are for banks willing to respond to the digital challenge, but also a degree of uncertainty about what that response should look like.
With competition from payments providers growing, it’s unsurprising that our research reveals a degree of anxiety on the part of the banking sector. This is felt especially when it comes to competition for small and medium business (SMB) customers. SMBs account for around 54 percent of sales revenue in the US, a huge amount of revenue and data, making it a sector of the market that the banks cannot afford to ignore.
The good news for banks is that they recognize the challenge.
Those we surveyed report that just under half (46 percent) of their banking customers are SMBs, up from 42 percent in our last survey. 45 percent of those we surveyed rank SMBs as the most important type of customer they have, up from 35 percent, suggesting that the banking sector understands the importance of this market. Revealingly, when asked which organizations they fear losing SMB market share to, 62 percent of respondents stated tech giants, while 59 percent reported payments providers. Meanwhile, those who fear losing market share to rival banks has declined from 60 percent in our 2022 survey, to 55 percent today.
Although banks recognize the challenge and are willing to meet it, uncertainty surrounds the question of what approach should be taken. The explosion of digital first payments providers is still a relatively new phenomenon, and incumbent banks are large, heavily regulated and often very complex organizations, so responding at the required speed isn’t easy (or cheap).
Our survey reveals a degree of inconsistency when it comes to considering this challenge.
While banks see the value of providing SMBs with services leveraging their own business’ data, the emphasis is shifting. In our last survey, 24 percent of those we surveyed saw a central role of the bank as being to provide data-led insights to SMB customers to help manage their business, while 13 percent emphasized providing data to help engage end customers. In this year’s survey, this position was reversed. Now 18 percent of respondents are focused on providing data about end-customers, compared to 16 percent who are focused on business management data. Likewise, while more banks in our latest survey report offering digital services to SMBs than was the case last year, there’s also been a reduction in those who report offering mobile payment acceptance.
All of which seems to indicate that many banks in the US are on the back foot. They’re reacting, often late, to the digital challenge, rather than developing proactive strategies to get ahead of it. But the survey also suggests a solution may be starting to emerge. Banks are beginning to realize the unique position they have in the financial and business ecosystem, and how they could build solutions that capitalize on that position. While the dots haven’t yet been connected, banks are sensing that a core role for them in the digital economy might be to simplify the lives of their SMB customers, ultimately reducing their cognitive load while also acting as an interface between digital service providers and willing customers. This is a genuine value-add that banks can bring to SMBs, which goes beyond both tech and finance. Even more exciting is that our survey reveals banks are willing to invest to take on the fintech challenge, however making the right investment will be crucial.
In our report, we explore these questions in greater detail, and outline the opportunity that exists for banks to take back market share from the fintechs, and shape the financial future for small and medium businesses across the US.
