Incumbent banks and financial institutions stand to lose increasing market share to digital-only banks that offer tailored and consumer-friendly financial ‘wellness’ functions, including spend analysis and payments management services, a new report by Forrester has shown.

The State of Banking and Financial Wellness report, commissioned by banking platform developer Backbase and compiled by tech research specialist Forrester, found that half of all surveyed banks across the APAC region have reported increased competition from fintech companies and neobanks over the last year – many of which have embedded or devised a suite of digital financial wellness tools for their customers.

“PFM [Personal financial management] tools are evolving into more intelligent and connected digital money management solutions, and a growing number of innovative fintechs now offer versatile apps, applications and platforms to help consumers manage their finances digitally,” the report noted.

“Consumers use digital-only banks precisely for the financial wellness and digital money management tools they provide. Traditional banks see a massive opportunity to compete in digital, and still retain their heritage and trust.

“And they need to compete. Legacy intuitions are slowly losing market share to digital-only banks and getting beaten on data and insight collection through such apps.”

According to the report, 62 per cent of consumers across the APAC region said it was either “critical” or “important” for their bank to support their financial wellness with suitable personal financial management tools and services to help manage their money.

Tellingly, 55 per cent of decision-makers from APAC banks reported that, upon implementation of digital money management tools, their institution witnessed a spike in digital banking adoption. Nearly one in three (31 per cent) expect to see that increase in the future.

“Higher adoption of digital banking has enabled channel optimisation for these banks, supporting cross-channel experiences and reducing friction in the customer experience,” the report noted.

Locally, 64 per cent of surveyed consumers across Australia and New Zealand (which were recorded collectively) said it was critical that their bank offer digital money management tools and services as part of improving their financial wellness.

These PFM tools might include spend analysis, subscription and recurring payment management, savings goals, and transaction categorisation, among others.

What is more, technologies that can provide an “aggregated view” across multiple accounts, along with alerts and insights from personal finance services like Frollo, Humaniti, and myprosperity – “all of which are gaining traction and market share amongst Australians and New Zealanders”, the report said – are seen as key to enhancing the banking experience for customers.

It appears, at least locally, that banks are heeding these customer demands, with 88 per cent of FSI decision-makers surveyed within A/NZ noting that the creation of spend analysis tools is among their top investment priorities.

What is more, 92 per cent of A/NZ banks have also prioritised the implementation or expansion of financial wellness functions over the coming months.

However, there appears clear “unmet demand” for personalised and flexible financial solutions, with only 35 per cent of A/NZ consumers believing these are being offered by traditional financial institutions.

“Banks should provide enhanced customer onboarding and an open and modern architecture to launch digital money management tools, thus helping consumers to overcome their financial management challenges and meet their needs,” the report wrote.

Despite a significant 64 per cent of surveyed Australian and New Zealand customers saying they are comfortable with their current finances (and even more so – at 80 per cent – “informed” about financial tools to manage this), ranking at the top of the APAC country rankings, still many are struggling to get ahead, with 45 per cent feeling “stressed” about their financial situation.

More than half of those surveyed (55 per cent faced) said they faced challenges building their savings, while at least one in four (25 per cent) were struggling to manage their debt.

Local decision-makers in the banking sector have also acknowledged the impact that digital financial wellness initiatives, particularly targeted at vulnerable or older customers, can have in bolstering customer trust in traditional banking services – trust that has no doubt withered in recent years in the fallout of the Hayne Royal Commission.

According to the report, 72 per cent of retail banking business decision-makers have prioritised initiatives to ‘prevent exploitation of vulnerable and older customers’, while 60 per cent said the provision of ‘secure shared financial management solutions for vulnerable customers, powers of attorney, and caregivers’ was a focus.

More than half (54 per cent) said that ‘proactively helping customers with mental health issues or financial distress’ was in their plans, with 74 per cent ‘using financial wellness to encourage customers to build better financial habits’.

Fintechs and bigtechs, the report noted, have effectively reset expectations of what banks and other established financial services should be offering to their customers.

“Digitally savvy APAC consumers are used to the contextualised experiences that big technology firms provide.”

“By embracing mobile technologies, predictive analytics, and artificial intelligence, tech firms anticipate customer needs and improve their daily lives.

“These firms set new standards for personalised experiences, creating the expectation that any information, product, or service is available in customers’ moments of need. So naturally, APAC consumers are now asking more from their banks.”

Survey findings, gathered between February and March this year, were complied by Forrester from 900 retail-banking consumers and 450 senior business decision-makers and influencers within financial services organisations (with responsibilities for digital baking and customer experience) across the APAC region. Four out of five industry participants were from traditional brick-and-mortar banks, with the remainder from digital-only institutions.

The full Backbase report can be accessed here.