Today, an easy-to-use app is what users expect. If traditional banks aim to keep consumer engagement high and use the mobile banking app to generate revenue, they cannot afford to keep widening the feature gap with challenger banks.
The entire finance industry is shifting from a physical consumer experience to a digital one. This trend also profoundly affects the banking sector, starting a race to develop the best mobile banking app. Will traditional banks be left behind?
Mobile banking usage surges
The use of mobile banking has risen by 30% during the COVID-19 pandemic, with further increases to follow, according to BCG. The pandemic has engrained permanent changes in user behaviour and accelerated the need for financial apps. Younger customers aged 18-34 drive this change as they trust digital solutions more than previous generations. Due to growing up using digital technologies, young customers favour digital solutions, with the mobile banking app being their preferred channel.
But mobile apps also dominate other age groups. Mobile banking trends show that across all users, today’s typical retail bank sees twice as much mobile logins and mobile payments as online logins, video calls, and branch visits combined, according to BCG. The domination of mobile banking is not slowing down any time soon, with the number of customer interactions with mobile banking platforms expected to increase almost 8 times in the future. Satisfying a demand of this magnitude means that pressure is intensifying on traditional banks to implement features to their applications that are useful enough to justify customers using them. If not, others will provide these features and traditional banks will lose revenue.
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Regulation changes mobile banking
There is one main reason why such a prompt improvement is challenging. Open banking and PSD2. This new EU regulation allows banks and financial institutions to easily access customers’ financial data not just in their respective institutions but across the entire industry. This democratisation of consumers’ financial data led to the rise of numerous fintechs and challenger banks developing new features like account aggregation, personal finance management, and subscription management. Most of these solutions could not have been possible before open banking, but now, bank customers – especially young users – expect them to be standard features. This means that modern mobile banking apps should have more functionalities than ever.
The widening feature gap
Traditional banks reacted slowly to the pressure to provide more features. Despite users wanting to use the app more, traditional banks do not seem to be ready. One of the most glaring areas in which traditional banks lag behind challenger banks is online account opening. 82% of global retail banks do not offer an end-to-end account opening via their mobile banking app, according to Deloitte. This does not fit well with the younger generation as for them: convenience is key. Banks that do not provide easy-to-use solutions are likely to fall behind the competition. And this is not a prediction for the future. The feature gap between the apps of traditional banks and new players is widening as new players provide more and more functionalities in the banking app, according to Deloitte. In contrast, traditional banks do not keep up the pace: challenger banks and new players release 4 times more updates than traditional banks, according to Optima Consultancy’s Mobile Banking App Review. Fortunately, traditional banks can break this seemingly unbreakable cycle by partnering with external parties to provide unique solutions faster than challenger banks.
Selling via the mobile banking app
Partnering with external parties like fintech companies make sense for traditional banks as fintechs develop solutions at a rapid pace. And here is the exciting part. The same open banking regulation that put pressure on traditional banks to have more functionalities now can seem like an advantage. Because fintechs can use open banking regulations to access data from traditional banks and their competitors to build market-leading solutions that are easy to integrate into existing banking platforms.
Bank partnerships with fintechs have high potential as fintechs can provide features that help customers not only research but also buy products using banks’ mobile apps. Today, too many banking applications are designed for simple activities like making transactions and checking information. But there is immense potential in selling products in the app. For instance, 35% of global banks already provide an end-to-end digital journey for getting a consumer loan, with many of them providing this feature in their mobile banking apps, according to Deloitte. With consumer loans being retail banks’ biggest revenue stream, according to BCG, the potential of providing a consumer loan-focused feature in the mobile banking app is tremendous. Fintech partnerships can be a clever way for traditional banks to develop such a solution.