RFI Group Insight CA: Digital giveth, Digital taketh away – The double-edged sword facing Canadian FIs

Traditionally, Canadian consumers have placed their trust in banks when it comes to maintaining the privacy and security of their personal information. However, following a global trend that we have already seen in other key global markets, we are starting to see the dial shift as large technology companies overtake banks as the most trusted providers in terms of data security. This shift may have been accelerated in Canada by several high-profile data breaches at several Canadian financial institutions over the past couple of years, shaking consumers’ faith in the infallibility of their security systems.

According to data from RFi Group’s H2 2018 Canada Digital Banking Council study, Canadian Millennials are now more likely to select Apple, Google or Amazon as a highly trusted provider in terms of maintaining the integrity of their private information, whereas older Canadians still trust their banks and financial institutions. In line with this trust, Millennials are more likely to be willing to share their personal information with these tech giants than their FIs. If this is ringing alarm bells among existing FI’s, it should – younger customers already show less loyalty to their banks, as well as more appetite for new financial products and a higher willingness to consider not only other FIs, but large technology companies and FinTechs for their next financial product. Millennials also rate the ease of banking with their main FI significantly lower than their older peers – this is a direct consequence of these younger customers being acclimatized to the great digital experiences being offered by tech companies in other facets of their lives.

You might be tempted to think that the battle is lost, that the future generation is going to migrate in droves away from incumbent FIs and into the waiting arms of Tim Cook and Jeff Bezos. This may yet turn out to be the case – but the war is far from over. The fragmented and ‘tribal’ nature of the market when it comes to BigTech is one of the factors working in the banks’ favour – while Millennials trust these companies as a group, when compared to the individual companies the banks still hold higher levels of trust. However, this margin is rapidly closing, and Canadian FIs will soon need to compete head on with these tech giants as their trust advantage dissipates.

So, if BigTech is to make inroads into the Canadian banking market, where will the threat materialize from? Traditionally, disruption occurs where there is friction, so we simply need to look for the pain points in the Canadian consumer banking experience. Some of the areas where Canadians are least satisfied have already seen new entrants seeking to address these pain points – a prime example is international transfers, where innovative companies like Transferwise have already made their mark. However, perhaps the most crucial point of friction centres around product applications, particularly for new-to-bank customers. This represents the linchpin for market disruption in the financial space; if new entrants are able to develop a frictionless onboarding process for new applicants, one of the strongest barriers to customer switching will be removed and we can expect to see much more successful customer acquisition in the financial space. On the other hand, if incumbent FIs can solve the application problem, then their customers will have no need to turn to alternative providers to meet their financial needs.

While digital has given incumbent players the opportunity to streamline and improve engagement with their customers, it has also opened the door for new, innovative players to enter the market. The potential for disruption cannot be ignored, and banks that don’t meet the evolving demands of their customers do so at their own peril.

For more information on the role that digital plays in the Canadian banking landscape, and what the future holds from a digital perspective, join us at RFi Group’s Global Digital Banking Conference in Toronto on September 20th. I can’t wait to see you all there!

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