The financial services landscape is changing rapidly as consumers embrace digital banking options either out of preference or necessity. In fact, more than one-third of consumers (35%) are using non-traditional providers—a digital-only bank, stand-alone digital account or prepaid account—as their primary financial services provider, according to Galileo Financial Technologies’ 2021 State of Consumer Banking and Money survey.1

What’s more, while 65% of consumers still use traditional banks as their primary provider, the survey of 1,000 U.S. adults ages 18-65, found that consumers are keeping 43% of their funds in other types of accounts.

"People hardly ever choose to use just one provider, so there's a lot of opportunity to innovate and differentiate," Sherri Haymond, executive vice president of digital partnerships for Mastercard, told attendees during a recent webinar unveiling the research results. Haymond, who works closely with the payment network’s bank, tech and fintech partners, discussed the findings with Galileo Chief Revenue Officer Seth McGuire.

McGuire agreed that the transformation of the personal banking landscape has created tremendous potential for all companies in the financial services space as well as those looking to enter it.

"There's a lot more opportunity and open access for consumers, which is really powerful and important," said McGuire. "This fragmentation gives users a chance to do more with more providers, and it also gives more providers a chance to serve more consumers through different use cases."

The bulk of that opportunity lies with digital, the survey suggests. As consumers grow more comfortable with and confident in carrying out payments and other financial activity within the digital arena, digital-only banks and stand-alone digital accounts have gained significant market share. The presenters were clear to note, however, that every type of provider can and should be providing great digital experiences if they want to gain and retain customers.

Digital banking across demographics

The data also shows the rise of digital is happening across age demographics—a finding that runs counter to the common narrative of younger "digital natives" as the only consumer group widely using digital tools to manage and spend money (exclusively to buy avocado toast, purportedly).

In fact, consumers ages 35-44 are the most likely (29%) to use a digital-only bank as their primary financial services provider, outpacing both the 18-24 range (24%) and the 25-34 segment (26%). Driven largely by that traction among older, generally higher-earning, customers, digital-only banks held 22% of consumers' total overall deposits.

"That is a very impactful age group; there's a lot of spending power there," McGuire noted of the 35-44 demographic. When you start to see adoption in this age group, providers can think about expanding their services to match where those consumers are in their lives—whether they are buying a house or saving for kids’ college or retirement, he said.

And whether or not your products are designed for savings, for example, consumers are using them that way. Core banking functions like bill payment, cash access, depositing wages, shopping online and savings are among the most popular uses across account types. In other words, consumers are using non-traditional accounts in a myriad of ways—a trend that the COVID-19 pandemic has accelerated as consumers of all ages have shifted more financial activity into the digital realm.

"Many people have tried [digital] and have realized, 'maybe I don't really need a huge branch network in order to live my financial life,'" Haymond added.

Mastercard’s own New Payments Index data reinforces the acceleration in the consumer shift to digital. Not only have 63% of consumers tried a new payment method during the pandemic that they might not have used under normal circumstances, a whopping 93% said they would consider using at least one emerging payment method, such as cryptocurrency, biometrics, contactless or QR code, in the next year.

But Galileo’s data suggests that consumers are willing to do more than try a digital-only-bank. A significant percentage of consumers (61%) said they’re somewhat or highly likely to completely switch to a digital-only bank as their primary provider. Higher-income consumers were the most likely to consider such a switch, with 71% of respondents earning more than $100,000 annually saying they were highly or somewhat likely to go digital.

Can traditional banks compete?

In the face of growing competition from digital-only banks, traditional banks should focus on improving two areas digital providers have largely mastered: customer satisfaction and a positive mobile user experience.

The consumer survey revealed a considerable gap in customer satisfaction rates, with traditional banks lagging behind digital-based banking services. Seventy-nine percent of respondents who used a digital-only bank as their primary financial account said they were very satisfied with their provider, compared to just 66% of those who primarily used a traditional bank.

"Traditional banks should be getting more digital," advised Haymond. "They should be making sure their user experience is great and that they're offering new and innovative features," she said—citing tools ranging from P2P money transfer to buy-now-pay-later installment options and integrated cryptocurrency trading capabilities.

While services that were developed from the ground-up with digital in mind had a head start in this area, the playing field has leveled. Traditional banks now have access to all the necessary tools to compete with digital-only banks.

"Digital is table stakes," observed McGuire. "But the good news is that everyone can deliver on digital … All of the infrastructure, the technology and the ability to do it is there. The differentiation and decisions providers are making along the way are where it gets really interesting."

And for banks looking to bulk up their digital platforms, there's no shortage of innovative fintech providers to help provide these new capabilities.

"You don't have to do all of this alone," Haymond said. "There are ways to partner with non-traditional players in ways that are accretive to both the traditional bank and the fintech. And we're starting to see more and more of that."

Conversely, for digital-only banks or other non-traditional providers, now is the time to expand your product suite, rewards or other valued-added features, the panelists suggested.

Wherever you sit in the market, there are real opportunities to grow your business. Contact us to discover how Galileo can help.

1 The 2021 State of Consumer Banking and Money survey was conducted from July 14-17, 2021 and consisted of a 20-minute online survey of 1,000 U.S. adults, ages 18-64.