A recent study by Galileo Financial Technologies, in collaboration with Datos Insights, revealed that while 85% of consumers report positive experiences with their primary financial institution (FI), many turn to additional services from other providers.
This behavior reflects a significant shift in the banking landscape, as consumers are increasingly diversifying their financial options, which could undermine their loyalty to traditional banks.
Risk for Traditional Banks.
The Galileo Consumer Banking Report, conducted by Datos Insights, points out that while traditional banks still dominate the market, they face a significant risk of losing their status as the primary FI for many consumers.
This shift could affect both customer retention and long-term value, prompting financial institutions to quickly adapt to emerging consumer trends.
Boost to Financial Inclusion.
The study, primarily focused on the U.S. market, has important implications for banks and financial service providers in Latin America. In Brazil, for example, the number of bank accounts per person has increased from 2.1 in 2015 to 5.5 in 2023, according to data from Oliver Wyman.
Although the use of physical bank branches has decreased, customers still value the option to access them.
Transformation in Banking.
In Colombia, the 2023 Financial Inclusion Report indicates that more than 36 million adults have formal savings or credit accounts. Additionally, the Study on the Financial Behavior of Individuals in Colombia shows that, on average, Colombians are customers of 2.11 banks or financial entities.
Digital-only institutions are also playing a key role, with 13.9% of the banked population using only these services, and 32.2% accessing products from both traditional and digital banks.
Abdul Assal, Director of Business Development at Galileo in Brazil and Colombia, provides four key insights on the transformation of the banking sector:
1) Fragmentation of Financial Services:
Relying on a single provider for all financial needs is becoming increasingly irrelevant. Even among satisfied customers, the primary financial institution no longer holds the same weight.
Consumers, particularly younger Generation Z and millennials, are using, on average, more than six financial tools, with over half coming from outside their primary FI.
2) The Need for Personalization:
Personalization has become critical, yet many banks are failing to offer it adequately. More than one-third (37%) of consumers believe their primary FI does not provide personalized financial products, and 32% feel their banks do not fully understand their needs.
These figures underscore the need to leverage data intelligence and flexible technology to create more relevant and tailored experiences.
3) Preference for Self-Service Financial Solutions:
Human interaction is decreasing. Approximately 60% of consumers prefer to complete all their banking transactions without speaking to a representative, and 42% of younger millennials have used virtual assistants for financial transactions more than any other generation.
4) Untapped Opportunities with Gig Economy Workers:
Banks have yet to fully seize a significant opportunity with gig economy workers (freelancers). These professionals require specialized services, such as credit-building tools and budget management solutions. There is high expectation for financial institutions to address these needs in real time.
Challenges and New Rules.
As Abdul Assal explains:
“The financial services sector has never been so competitive; and we’re not just talking about banks. Today, a wide variety of providers can offer online financial services in Latin America, from retailers to fintechs; and this is reshaping the criteria for success. Customers are ‘comparing’ financial products in the same way they compare other services; they have never been better informed, and their expectations regarding customer experience have never been higher. We call these new rules *gustanomics*: the ability to offer relevant, truly personalized services at the right moment and to build deeper relationships with customers. These criteria have become the standard for any online service provider, and in Latin America, banks are no exception.”
The banking sector is undergoing a profound transformation. Institutions that adapt to the evolving demands of consumers will gain a significant competitive advantage.
