Relationship fragmentation is killing loyalty: How should banks respond?
Banks have long believed that delivering core banking services inevitably leads to ownership of their customers' full financial needs. That's becoming a dangerous myth, according to a new report on emerging consumer behaviors across multiple generations.
According to research by Galileo Financial Technologies in collaboration with Datos Insights, the fragmentation of banking relationships is changing the competitive dynamics of the banking industry. Consumers are flocking not only to the largest banking organizations but also to digital-only organizations.
In most cases, consumers aren’t closing existing relationships. Instead, they are building their own suite of financial products and services from multiple providers, making it more challenging than ever for traditional financial institutions to build a comprehensive relationship.
Fragmentation of relationships is particularly evident among Gen Z and younger millennials. On average, these digital natives use more than six financial tools or services, and more than half of these relationships are outside their primary financial institution. Of special concern is the significant fragmentation of banking relationships among older millennials and Gen X respondents as well.
Like their younger demographic peers, these older consumers also hold more than six accounts, with half outside their primary financial institution. According to the research, while ‘convenience’ was mentioned as a significant reason for this fragmentation, this did not relate to geographic convenience but to the ease of opening and using the financial service at the time of need using digital channels. As digitally enabled neobanks and fintech firms offer contextual financial services at the customers’ fingertips at the moment of need, it becomes easy for consumers to choose their unique set of financial service providers.
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