Executive summary

A point of extra interest here, a fee waiver there, fast and easy online signup—at every turn, it seems, another digitally intensive company snags new customers for a loan or a current (checking) account. With more consumers using more providers, this unbundling of banking services has accelerated among both traditional and insurgent banks.

Bain & Company’s latest survey of 29,805 consumers in 11 countries, powered by Dynata, finds that the fragmentation of banking is widespread. However, it’s more pronounced in developing markets such as Brazil and India, where large groups of lower-income consumers had long been underserved by banks and now find access through neobanks (the latest generation of direct banks) and other online companies. Digital-native banks, with their more modern, flexible technology and more affordable products, have made inroads in targeting these consumers with unmet needs.

Yet, although many of the digital insurgents initially targeted lower-income households, our survey shows that people with higher levels of income and formal education are also flocking to neobanks. These groups present major prospects for profitable growth—if banks can improve their offerings and experience to expand business with these customers and boost loyalty among their current customers.

Neobanks appeal to all ages

Traditional banks still claim the majority of primary relationships with consumers. But most markets have experienced a rise in neobanks, and younger generations have more primary relationships with digital-native banks. Older consumers are also signing on with neobanks and other direct banks.

For example, Varo Bank, the only US neobank to hold a banking license, has attracted a broad cross-section of customers through offerings that resonate across segments, incomes, and ages—rooted in its mission to make financial inclusion and opportunity a reality for all. One customer drawn to Varo is Patel, who lives in New York City with his wife and son. He earned a doctorate in neuroscience and quantum mechanics, works as a product director, and keeps involved in the scientific community. Patel wants to “build money” and switched the direct deposit for his royalty income to Varo from one of the big national banks, to take advantage of Varo’s higher rate of return and “nice user experience.”

Digital-native insurgents have made progress in another key dimension: customer loyalty. Their Net Promoter Scores for the overall relationship exceed, on average, that of traditional banks in every country. As loyalty erodes at a traditional bank, customers will look elsewhere for ancillary services and maintain fewer products at the primary bank.

How unbundling plays out in payments

With people making purchases regularly, sometimes several times a day, payments have become an important means of engagement for banks. Yet the ways that people pay for things are fragmenting, leaving banks at further risk of losing relevance in customers’ daily lives, along with the loss of transaction data that accompanies a payment.

That disintermediation characterizes the rise of e-wallets. While consumers use current accounts directly for most of their spending, e-wallets have become common across many activities. Real-time payments networks emerging in many countries make it simpler for customers to move their money from a current account to an e-wallet. Payment fintechs have surged, particularly in emerging markets such as China and India, but banks in the US, the EU, and other developed markets are not immune and should prepare.

No e-wallet is the clear global leader, though PayPal is most widely present online and Apple Pay in stores in developed markets. Other companies lead in specific local-market situations, including Bizum for peer-to-peer payments in Spain and WeChat Pay and Alipay in China.

Young consumers show the strongest preference for e-wallets over credit cards. Among those in their 20s, many started their careers during the pandemic and learned about personal finance the hard way, falling behind on rent and other payments. In the US, for example, this instilled a fear of debt that has translated into low credit card adoption, research by Bain and other organizations shows. But older generations as well are picking up use of e-wallets, especially for e-commerce.

To counter the fragmentation of services, banks can focus on engaging customers through better payments propositions, an enhanced digital experience, more personalized offerings and marketing, and a higher profile in environmental, sustainability, and governance (ESG) issues.

Make digital channels easy and convenient

Our survey highlights how the slightest friction in banks’ digital sales process degrades consumers’ perceptions of the overall relationship with the bank, prompting many of them to switch to a competitor. The 103-point NPS® spread between respondents who successfully opened an account digitally on their first attempt and those who could not open the account and chose a different bank is remarkable. Even in the best markets for account opening—the UK and Hong Kong—only about two-thirds of respondents were successful the first time.

For banks that excel in the digital sales process, the payoff is substantial. In the UK, Revolut, Starling, and Monzo all boast digital account opening failure rates of less than 1% or 2%, and they rank among the highest in the country in overall relationship NPS. Strong NPS makes for customers who stay longer, buy more, cost less to serve, and will more likely recommend the bank to friends and family.

“Right first time” has been a tough challenge for traditional banks to crack, because it requires fixing details throughout an episode, crossing many functions within the bank and many underlying processes such as know your customer and anti-money laundering.

But some banks have been able to make steady progress in this area. Wells Fargo, for instance, substantially reduced the digital failure rate for account opening starting in early 2021, NPS Prism® data shows, so that by 2022 it outperformed other large US banks. A Forrester report on US mobile banking gave Wells Fargo the top spot in functionality, noting the bank’s streamlined application process with forms that offer autocomplete, access to live chat throughout, and clear onboarding next steps.

Tailor to the person

Consumers have grown accustomed to personalized services and marketing in many industries, heightening expectations for banks. Indeed, the more our survey respondents agree that their bank personalizes the relationship, the higher NPS they give it. And they mostly trust banks to use their personal data to offer the right product for their needs, or to recognize their personal banking priorities whenever and wherever they interact. Banks also could provide insights to customers based on their payments data. For instance, a customer who carries high credit card debt with other providers would be ripe for an offer of a line of credit at a lower interest rate from their primary bank.

To excel in personalization requires several critical capabilities. The bank must understand an individual’s needs, form a strategy to actively engage them at the right moments, adjust the content of communications based on the customer’s actions, and measure the effect of each action.

Halifax in the UK, for example, maintains a list of customers deemed to be in a difficult financial situation. Bank agents call these customers to offer advice and tools, such as a subscription manager and payments manager, to help them better handle their finances.

In Singapore, DBS’s PayLah mobile app is a one-stop shop that supports users across a range of daily needs, from rides to deliveries to payments, through an extensive network of partnerships. Customers get rewards redeemable for discounts on offerings in this ecosystem.

Artificial intelligence increasingly supports personalization on a large scale. RBC in Canada uses an AI-enabled assistant called NOMI to personalize digital money management for customers. Features include timely tips pushed to clients, personalized budgets, and savings recommendations based on spending behavior and cash flow. In the year following its launch, the results were promising, with 50% more digital interactions for NOMI customers relative to the entire customer base, 93% more time spent on financial accounts, and 2% attrition of NOMI customers vs. 8% for their peers.

Ramp up ESG initiatives and awareness

For many customers, the steps their bank is taking to advance ESG goals can influence engagement, as consumers’ perception of the bank’s ESG activity correlates with their advocacy of the bank. Yet our survey finds that only about half of customers have a favorable view of their primary bank’s ESG efforts, and almost one-quarter don’t know about those efforts, possibly due to lack of communication from the bank.

No single product or feature covers all of the ESG priorities in consumers’ minds. However, those that resonate the most tend to touch on rewards/lower fees and environmental contributions. For example, survey respondents most appreciate rewards for good behavior and fee waivers for investments that support sustainable projects. Banks that maintain close engagement with customers via their payments products have an edge in addressing ESG priorities because they have a more holistic view of their customers’ behavior.

Banks have made ESG advances on the corporate side through such initiatives as green loans, but it’s still early days on the consumer side. Examples of promising initiatives include a cash-back program for customers who choose paperless banking, a free carbon offset for customers who purchase an electric vehicle, and card-linked offers with special deals and rewards for behaviors that reduce carbon.

Investing in ESG initiatives and raising awareness of these efforts can benefit both banks and consumers. By promoting sustainable practices and financial incentives, banks can increase customer engagement and advocacy while also contributing to a more sustainable future.

* * *

The ease of switching providers digitally for banking products has powerful momentum. Still, banks do have the means to strengthen their current customers’ loyalty and to make it easier for new customers to sign on. Combining convenient, flawless digital tools with smart personalization allows banks to tailor interactions and servicing to each individual’s needs and priorities, including the ESG issues that matter to a growing share of customers.

1. From one-stop shop to many-stop shops

• The unbundling of banking services pervades all countries in our survey, with the sharpest rise in developing markets. The trend spans all age groups.
• As consumers use more providers, they’re more apt to buy from digital-native direct banks. Adoption of neobanks still varies substantially by country and remains higher everywhere among young consumers. However, neobank penetration has spread among customers at all levels of income and formal education.
• In every country surveyed, traditional banks still have the majority of primary relationships with consumers, which partly reflects the fact that direct and neobanks often have a narrower suite of products.
• That has not prevented consumers from giving higher Net Promoter Scores for neobanks and other direct banks than for their traditional competitors.
• Traditional banks lead in product ownership relative to direct banks. But greater fragmentation correlates with fewer products owned by consumers at their primary banks.

Figure 1

Fragmentation of consumers’ banking behavior is higher in developing markets

Figure 2

Fragmentation of banking spans all age groups

Figure 3

Consumers’ migration to neobanks varies greatly by market

Figure 4

Neobank adoption is higher among younger people, but older consumers also use neobanks

Figure 5

Consumers at all income levels use insurgent banks

Figure 6

Younger consumers have more primary relationships with neobanks

Figure 7

Direct banks and neobanks earn higher Net Promoter Scores than traditional banks

Figure 8

In primary relationships, traditional banks tend to have higher product ownership than direct banks

Figure 9

The more consumers unbundle, the fewer products they own at their primary bank

2. In payments, e-wallets have come on strong

• While consumers in most countries surveyed use their primary bank account directly for the majority of their spending, e-wallets have spread quickly, even dominating in some countries as the preferred method of payment (as distinct from share of spending).
• Consumers turn to e-wallets most often for paying other people and for e-commerce.
• E-wallets are the leading payment method in China and India for e-commerce purchases—and indeed, across all activities; by contrast, they are lagging in Hong Kong and Brazil.
• No e-wallet brand has claimed a position as the clear global leader, but PayPal stands as the most widely popular for online purchases, either as a channel for the consumer’s credit card or as a wallet loaded with funds.

Figure 10

Consumers in developed markets tend to spend more using their primary bank account than consumers in developing markets

Figure 11

E-wallets have surged for paying other people and making online purchases

Figure 12

E-wallet use varies substantially by country

Figure 13

E-wallets are slightly more popular with younger consumers

Figure 14

Younger consumers also use e-wallets frequently for in-store purchases

Figure 15

PayPal dominates in developed markets as the preferred e-wallet for e-commerce

Figure 16

For in-store purchases, Apple Pay is the preferred e-wallet in many developed markets

3. Foolproof and convenient are the watchwords for digital channels

• Few banks have managed to refine their digital channels to the extent that virtually all consumers are able to complete a task digitally on their first attempt.
• In opening an account, for instance, the best-performing markets, in the UK and Hong Kong, still had one-quarter of attempts go wrong the first time, and consumers in Spain, Italy, France, and other countries fared worse.
• A poor or even mediocre digital experience directly correlates with consumers’ perceptions of the bank relationship as a whole, as measured by Net Promoter Score.
• Getting the digital experience right pays big dividends, as promoters—consumers who give high loyalty scores—spend more with their bank, cost less to serve, and are more likely to recommend the bank to friends and family.

Figure 17

Banks’ ability to deliver “right first time” digital account opening varies by market

Figure 18

Customers’ digital experience with a bank directly influences their perception of the overall relationship

Figure 19

Friction in banks’ digital sales process degrades consumers’ perceptions

4. Make it personal, please

• The degree to which consumers feel their primary bank personalizes services has a strong influence on their level of loyalty and advocacy. There’s a 123-point difference in NPS between respondents who strongly agree that their bank interacts based on knowing who they are and those who strongly disagree.
• Most respondents report that their primary bank does a good job of personalization in terms of respecting privacy, offering products that meet their needs, and actively resolving issues. Where banks have the most room for improvement is in loyalty programs and personalized interactions.
• Because most respondents trust their primary bank with their data, they are comfortable with the bank using that data for tailored offerings.
• Demand for personalized offerings includes products, the service experience, pricing, and prepopulated forms and applications.

Figure 20

A bank’s ability to personalize offers and communications directly correlates to its overall loyalty score

Figure 21

While consumers tend to perceive good levels of personalization, there is room for improvement, especially on rewarding for loyalty

Figure 22

Most consumers trust their primary bank with their data and would support its use to help personalize the experience

Figure 23

More than 70% of consumers are interested in having their personal banking data used to receive personalized offerings

5. Many consumers assess how their bank performs on ESG issues

• Respondents who perceive their primary bank as active and responsible along ESG dimensions tend to give the bank a high loyalty score. Conversely, those who disagree penalize their bank with a negative NPS.
• Only 52% of respondents believe their primary bank performs well on ESG efforts.
• Banks still have a communication challenge. Some 22% of respondents are unaware of their primary bank’s ESG efforts.
• Many products or features figure into ESG priorities in consumers’ minds. Those selected as important by the greatest share of respondents include getting rewarded for good behavior, waiver of fees for sustainable investments, sustainable deposits, and improving customers’ environmental footprint.

Figure 24

Consumers’ perceptions of their bank’s ESG activities directly correlate with overall loyalty scores

Figure 25

More than 20% of consumers are unaware of their bank’s ESG efforts

Figure 26

Among desired ESG features and products, consumers most often cite rewards for good behavior and waiver of fees for sustainable investments

• Acknowledgments

  This report was prepared by the authors and a team led by Marc Saliba, consisting of Neha Datta, Neeraja Krishnadas, Devanshu D, and Nikhil Kumar. The authors thank Bain partners in each of the countries covered in the report for their input and John Campbell for his editorial support.

About the Research

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