Survey Finds Consumer Loyalty is Keeping Big Banks Alive, but FinTech is Key to the Future

Blumberg Capital’s Annual FinTech Survey finds more than two-thirds of Americans are looking for banks to provide new FinTech solutions

SAN FRANCISCO –Oct. 11, 2017 – Consumers remain loyal to big banks despite a majority of Americans believing that traditional financial institutions do not evolve fast enough to keep up with the rising needs and expectations of consumers. Contrary to the popular belief that big banks and FinTech companies are locked in a zero sum battle; American consumers want the best of both.

Blumberg Capital, a San Francisco based early-stage venture capital firm, today released findings from its annual FinTech survey, conducted by an independent polling firm. The survey examines attitudes of American consumers toward traditional banking institutions, FinTech startups and new financial technologies including blockchain and cryptocurrency. According to KPMG (source), U.S. FinTech investment saw its second strongest quarter ever for venture capital investment in Q2 of 2017, but despite increased investment pace, consumer FinTech adoption in the U.S remains at only five percent (source).

At a high level, the survey found that public sentiment toward FinTech remains positive, but there is much lower adoption by underserved demographic groups. Low-income families and older Americans remain wary of new financial technologies. The survey reveals an opportunity for big banks to leverage existing consumer loyalty to introduce new technologies that benefit more consumers by saving them money, increasing transparency and making transactions easier.

“Previously in the financial industry, capital, reputational trust and regulations were the only barriers to entry,” said David Blumberg, founder and managing partner, Blumberg Capital. “Technology is changing the game. Large financial institutions need to build or buy innovation to maintain and extend their leadership positions. As consumers demand the new technologies, we will see increased adoption or acquisition of FinTech by banks to serve consumers. In addition, the FinTech revolution is expanding the market, thereby positioning some pure play FinTech startups to become large financial institutions of the future.”

Banks, FinTech or Both?: Consumer Attitudes on Banks and FinTech

Half of the American population prefers to use a traditional financial institution, but also seeks the benefits of new technologies and services. What’s more, more than two-thirds of Americans would trust new payment or investment technologies more readily if offered by their existing bank. The survey also examined the factors that would influence American consumers to consider switching financial institutions or services. Almost one third of respondents claim nothing could influence them to leave their bank, while nearly half said they would consider leaving for lower fees, and almost 40 percent would leave for lower interest rates or a higher level of security.

Other findings include:

– 57% have a positive view of FinTech startups.

– 57% think the days of going into a physical financial institution for any reason are coming to an end.

– 24% prefer a traditional bank and they do not want to take any risk with FinTech solutions.

– 56% are often confused about the information provided by financial institutions in billing, financial reporting and fee structures.

– 79% want access to flexible borrowing capabilities that minimize their interest payments.

– 63% would like an automated system that ensures they never miss an interest payment and reduces their total interest paid through optimization.

“While the average consumer may hesitate to change from traditional banking to emerging FinTech products and services, the potential benefits may become too valuable to ignore,” Blumberg continued. “These results indicate that for FinTech startups to scale and thrive they need to provide a product or service that is substantially better, not just incrementally better than traditional banks. At the same time, if banks don’t adapt and adopt new technologies they risk losing the next generation of customers.”

FinTech for Inclusion: How New Technologies Democratize Financial Services

“Another investment thesis that was validated by this survey is the accelerating democratization of financial services to all, including underserved demographic groups,” Blumberg continued. “FinTech products and services are providing broadening access to the benefits once reserved for institutions or the wealthy.”

While this is positive, FinTech companies need to work to reach these consumers, educate them on the benefits of the new technologies and convert them into long-term users. Findings revealed a gap between low-income and high-income households and younger and older generations in willingness to use new financial technologies. The data shows low-income households and the baby-boomer generation are most reticent to adopt new technology.

– 80% think financial institutions need to focus more on helping the average consumer and small business owners rather than big business and wealthy customers.

– 76% believe financial technology helps consumers gain more power over their finances and helps democratize financial services.

– Those with a household income of less than $25,000 are less likely than those with a household income of more than $75,000 to say that they would like an automated system that ensures they never miss an interest payment and reduces their total interest paid through optimization (57% vs. 71%).

– Those with a household income of less than $25,000 are more likely than those with an income of $75,000+ to claim nothing could influence them to switch their bank (37% vs. 21%).

– Those 55 and older are less likely than younger consumers to say they prefer to handle their financial dealings online (58% of 55+ vs. 68% of 40-54, 75% of 30-39, 74% and of 18-29).

– Those 55 and older are more likely than younger consumers to say they want a traditional bank and don’t want the risk of FinTech solutions (33% of 55+ vs. 22% of 40-54, 20% of 30-39, and 19% of 18-29.

– Those 55 and older are more likely than younger consumers to say nothing could influence them to switch financial institutions (49% of 55+ vs. 27% of 40-54, 16% of 30-39 and 19% of 18-29).

 

Trust Issues: Security and Cryptocurrencies

With major breaches in security at large established financial institutions such as Equifax, in which the personal information of 143 million Americans was exposed through hacking, many wonder if any institutions are trustworthy. According to the survey, Americans are skeptical about the ability of banks and FinTech companies to keep information safe, but consider big banks less risky than emerging FinTech companies. On the other hand, Americans don’t know much about important emerging technologies such as blockchain and cryptocurrencies. While overall sentiment is positive, there seems to be some confusion around the use, risk and benefit of these new technologies.

– 76% worry about security with some of the new online banking and payment services. This increased from 72 percent in the 2016 survey.

– 68% believe traditional banks are trustworthy and look out for customers’ best interests.

– 51% are not confident their financial institution keeps their information secure or private.

– 53% don’t know or are unsure of what blockchain, bitcoin and other cryptocurrencies are; yet 51% believe the latest developments in cryptocurrency will improve the financial industry by making things cheaper and faster for consumers.

– 37% think Bitcoin and other cryptocurrencies are fake or fraudulent currencies.

– 40% think cryptocurrencies are used by criminals or hackers to receive compensation discretely.

– 35% believe cryptocurrencies are a viable alternative to the traditional system of currency.

For a complete look at the survey findings, click here.

FinTech Companies Weigh In

Some of the founders and CEO’s of Blumberg Capital’s portfolio companies offered additional commentary on the survey results:

“Historically, accessing needed financial services has been a challenge for both the average consumer and small business owners. At Bento for Business, we agree with the 75 percent of Americans who think the latest FinTech technologies will help people be better off financially. We believe in the power of FinTech to enable underserved business owners through access to capital, financial management tools and more.”
 
– Farhan Ahmad, founder and CEO, Bento for Business

“With so many large cyber breaches and attacks of late, it’s not surprising that consumers are more worried about security of online banking and payment services. To help quell those concerns banks and FinTech companies need to do two things — educate the consumers about the new technologies and how to effectively use them ensure security; and implement technologies that don’t cause friction or damage the consumer experience. As an example, behavioral biometrics is a terrific solution that is able to authenticate users post log-in without any knowledge to consumers.”

– Eyal Goldwerger, CEO, BioCatch

“Banks and lenders have long taken their customers for granted – expecting them to remain loyal regardless of poor customer service, cumbersome processes and lack of access to clear information. Luckily, today’s consumers are more empowered than ever before. Consumers see the new solutions provided by FinTech companies and want the same from traditional financial institutions. As this survey notes, 63 percent of consumers would like an automated system that ensures they never miss an interest payment and reduces their total interest paid through optimization – yet most lenders do not offer these solutions. At EarnUp, we partner with national lenders, banks and financial institutions to deliver intelligent automated payment solutions that lenders can offer instantly to their consumers – helping those consumers never miss a payment, reduce their interest charges, and get out of debt faster.”

– Matthew Cooper, co-founder and CEO, EarnUp

“Financial literacy can be difficult for the average consumer. Even financial professionals can spend an enormous amount of time sorting through difficult fee structures to understand the entirety of the hidden fees that a customer faces. As the survey notes, 56 percent of consumers are confused about the information provided by financial institutions. This is unacceptable. At FeeX, we focus on making financial information transparent, including fees paid. We aim to make financial literacy possible for everyone so people can gain power over their finances.”

– You Zurel, co-founder and CEO, FeeX

“This is an exciting time to be in FinTech as big trends like digitalization, blockchain, artificial intelligence and big data converge. All these solve very big problems for the customers and the institutions. We’re now ushering the era of the machines, where high friction activities such as underwriting can be done faster, cheaper and with greater accuracy at scale. This means that underserved segments can now benefit from much better user experience and faster access to payments and working capital solutions.”

– Eyal Shinar, CEO, Fundbox

“The survey shows that the services and products offered by FinTechs have become increasingly relevant for consumers. However, it also shows that consumers still seem to have a lack of confidence in technology when money is involved. We believe that FinTechs will continue to evolve and create a whole new ecosystem of specialized players, stepping into all the verticals where banks have left their consumers behind. We especially see a big opportunity in automating all processes with regards to financial services and beyond – which will lead to individualized offers and custom-tailored products for the consumer and therefore greater consumer acceptance. “

–Alexander Graubner-Müller, CEO and founder of Kreditech

“In an industry slow to implement changes, digitization of traditional financial services has shown to be the way forward to more affordable products and enhanced customer experience. Leading financial institutions are looking for companies like Lenddo to successfully achieve their digital transformation by leveraging innovative data sources and driving higher levels of growth and profitability, enabling them to make more accurate and quicker decisions across the customer lifecycle.”

– Richard Eldridge, CEO, Lenddo

“FinTech and the rise of the micro-merchant economy are revolutionizing the delivery of financial services and advancing financial inclusion through an evolving digital marketplace and the push towards an inclusive, mobile-first society. Given the rapid growth and adoption, we recognize the need for regulatory technology (RegTech) solutions to increase trust and safety online by powering fraud prevention and compliance systems for payment providers, e-commerce merchants, financial services providers, online gaming and online marketplaces. RegTech automates compliance processes, making systems more efficient and cost effective – a win for businesses and consumers.”.

– Stephen Ufford, CEO, Trulioo

Methodology:

This online survey was conducted by Regina Corso Consulting on behalf of Blumberg Capital between September 5 and 8, 2017 among 2,037 U.S. adults, aged 18 and older. Figures for age, gender, education, income, employment and region were weighted to bring them into line with their actual proportions in the population. Because the sample is based on those who agreed to participate, no estimates of sampling error can be calculated.