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Leveraging the global digital shift to amplify your market access and customer engagement

Mark Frey and Phil Valvardi October 27, 2016

From the urban streets of New York City to the rural villages of Vietnam, consumer markets around the globe are expressing a demand to access mobile banking services in the same way they access everything else; on their smartphones. Over 85 per cent of Millennials in the United States have a smartphone glued to their hip, with the number continuing to grow as the cost of ownership comes down. Pew Research Center cites 64 per cent of American adults owned a smartphone in 2015, an increase from the 58 per cent in 2014. The rising popularity of affordable smartphones has led to a digital disruption in the financial sector among many age groups across both developed and developing countries. EY expects the growth of smartphone shipments to double between 2014 and 2018 in emerging markets such as Indonesia, India, and Russia. This digital shift is not only driven by necessity but also by the changing social values reflected in a maturing demographic with its own set of attitudes and behaviors towards the finance industry.

The case for digitization can be seen already with Canadian banks where, despite weak economic growth, they have reported better-than-expected quarterly profits due in part to their investment in mobile banking services. To leverage this momentum and mobile banking model, financial institutions must look toward digitization as a channel or face being left behind. Understanding the various customer markets, including Millennials who hold a valued market share, alongside collaborating with partner FinTech solutions can help financial institutions better serve their customers and reach new, underserved markets.

The Millennial factor: Skepticism driving change

Millennials, who are sometimes viewed as a connected but skeptical demographic, are the largest generation comprising the workforce in Canada. How they choose to do business is influencing financial institutions to develop financial solutions that resonate with them. According to the Millennial Disruption Index, 53 per cent of Millennials do not feel their banks offer anything different than other banks, indicating that they see major banks as a homogenous entity with no discerning differentiators. Is it any wonder then that they believe innovation will come from outside the industry? Compared to the personal computing industry or the discount retail industry, banks are considered to face the highest risk for disruption in the eyes of Generation Y, with 33 per cent of them having the opinion that they won’t actually need a bank in five years’ time. The established reputations of the big banks do not hold much value for this cynical demographic.

However, all is not gloom and doom, because this growing cynicism presents opportunities to better cater solutions to this younger, socially conscious group. Millennials, despite their mistrust of financial institutions, are influenced heavily by the power of their peers. The 2015 Millennial Impact Report on Cause, Influence and the Next Generation Workforce, shows that through their peers, Millennials can be engaged to action. Millennials’ almost innate use of social media means that peer group approval and the viral nature of word-of-mouth can go far further and have far more effect within this demographic than more traditional media channels, making socially conscious banking a real alternative model for hitherto underserved markets.

For financial institutions, particularly those that are actively looking for solutions to expand their business in the retail sector, mobile financial services offer expansion opportunities without the bricks-and-mortar and associated capital investment. Mobile financial services allow financial institutions to potentially access new markets and new customers without expanding their geographic footprint.

The rise of mobile in rural markets

Developing economies, such as India or Vietnam, also show the same consumer appetite for mobile banking applications, albeit from altogether different cultural circumstances. In rural areas of the world, where trips to the city centre would not be a part of the daily routine, a portion of the community may never have had regular access to banking services. For rural families that have family members working as migrant workers, receiving money transfers from their wages forms an invaluable and stable contribution to the family income. The World Bank reports remittances increased 0.4 per cent from $430 billion in 2014 to $431.6 billion in 2015. There is not only a desire to do things in a mobile fashion in emerging markets but it is also a case of pure necessity. There is a strong pull for mobile financial services in terms of growth from developed and developing markets that will influence how financial institutions think about the global marketplace.

One of the issues surrounding mobile opportunities in emerging markets for financial institutions is the high cost of remittance services for migrant workers who send money home. On the individual level, what does receiving an extra $25 as a result of reduced banking fees mean in terms of available income for sustaining a family in an emerging market? It is a good chunk of money that goes a long way for migrant workers. For the individual user, receiving immediate payments through his or her smartphone and getting more of those funds through savings on money transfers is impactful.
Financial institutions tapping into emerging markets from the mobile perspective have the ability to be resourceful with traditional fee structures in the digital space and to improve upon the nature of international peer-to-peer (P2P) transfers. Innovative solutions can offer up new opportunities for revenue streams to increase customer engagement with the brand and services of a financial institution.

Collaborate for competitive edge

Financial institutions stand to gain from opportunities in mobile financial services with a social component. In terms of connecting users within a community of shared values, social banking models are an attractive strategy to attract and retain new markets. However, the digital ecosystem will be driven by bank collaborations with FinTech companies. Rather than competing, banks and FinTech companies can be potential partners in the financial services market, as well as in the payments space. Financial institutions and FinTech companies are embracing the symbiotic alliance for multiple reasons, as in working together the banks can respond more swiftly to the demands of changing customer expectations, and FinTech companies can work within a regulated environment that allows for their solutions to have a high chance of success.