By now it is clear that banks' younger customers are there for the taking, should a strong digital brand like Amazon, Google or PayPal ever court them for banking services.
In an Accenture survey conducted in March, for example, almost half (46%) of consumers aged 18 to 34 said if PayPal offered banking services, they would want to use them. About 40% said the same about Google and 37% favored Amazon. Accenture polled 3,846 bank customers in North America.
AlixPartners asked 1,249 smartphone and tablet-using consumers at the end of 2013 which providers they would most want to use for a digital wallet (defined as a tool that stores payment card numbers and loyalty, gift card, reward, coupon and discount information). Close to half (46%) would want one from PayPal, 19% from Google. Half (50%) said they would want their primary bank to provide the service. (Respondents could select more than one choice.)
In spite of those Internet companies' popularity, banks can take back "mind share" on the new battlefield of mobile apps, experts say. The banks can bring to bear two key advantages: access to customer data that can be used to provide targeted, relevant advice; and trust.
The tech brands' appeal to banking customers is unsurprising. PayPal, for instance, has been building its brand, originally for online payments, for years and now has 143 million registered accounts.
"PayPal has been more aggressive than other large brands at expanding its brand and footprint from digital into physical, with some of their big partnerships with the likes of Home Depot," points out Theresa Epperson, managing director of AlixPartners. PayPal has also resurrected a large user base created during the heyday of its parent company, eBay.
"With the resurgence of mobile, all of a sudden they were able to reignite those relationships and turn those dormant relationships into active users, which has made a big difference," Epperson says.
PayPal's user interface for the online and mobile channels is also a source of brand strength. "They're taking a page out of Amazon's book and making it so easy to use that how could you not use it," Epperson says. "Once your cards, your payment mechanisms are enrolled, it makes it hard to use anything else."
EBay has acquired interesting technology companies like the bar code scanning provider RedLaser; the online payment gateway company Braintree; the price research firm Decide.com; and Hunch, a service that provides a "taste graph" of personalized recommendations based on users' interests.
"They've been building a portfolio of digital commerce capability through acquisition that turned them into more than just a payments company," says Bob Hedges, managing director at AlixPartners.
Google, Amazon and PayPal have all used digital channels to become easier to do business with than legacy companies, according to Wayne Busch, managing director of Accenture's North America banking practice.
"Most consumers aren't comparing their banks to other banks," Busch says. "They're comparing their banks and the experience they have in the branch to companies in markets like retailing, search, and location services."
Banks have to work harder to make their digital channels extremely easy to use, says Nicole Sturgill, a research director at CEB TowerGroup.
"You can't just have the design team or online banking team run through the process to make sure it makes sense. They're too close to the process," she says. "You need to pull in people who are not familiar with the online and mobile banking process to make sure they understand how it works, and that the instructions are clear enough that they can follow it without knowing what they're doing when they go into it."
Banks also need to communicate better over digital channels, Sturgill says. "When the customer submits a request, in the customer's eyes, it goes off into the Internet. They don't know what's happened with it after that."
Financial institutions need a plan for ongoing communication, such as an automated response confirming that the request was received, followed by regular follow ups. "If it's going to take seven days, email them every couple of days to let them know where it is in the process," she suggests. "Something so you're continually updating them on what's going on and they don't have to think, 'did that get lost somewhere?'"
Another way banks can increase mind share is by providing offers, advice, and recommendations that work to the customer's advantage, Busch says. "In that context, when you have a product [to offer] it doesn't come across as creepy," he says.
Banks could analyze customers' spending patterns and suggest ways they might save on, say, bill payment or groceries. "Customers are looking for that insight," says Busch. "They want proactive advice."
A good role model for U.S. banks, the Accenture team says, is Garanti Bank in Turkey. Last year, the bank launched a mobile app that provides mobile payments, personal financial management tools, and location-based merchant discounts as well as basic banking. Garanti partners with Foursquare and merchants for the location-based discounts. The app also analyzes transaction data to provide savings suggestions for users and estimate how much money they will have in their account for the rest of the month. It offers "impulse saving" tools and provides access to the bank's loan products.
There are always data privacy concerns about using customers' data. In an example made famous by The New York Times two years ago, retailer Target's data scientists found that women in the first 20 weeks of pregnancy tend to buy large quantities of certain products (such as lotion and dietary supplements), and marketed to them accordingly. One day a father stormed into a store, angrily demanding to know why his teenage daughter was being sent coupons for maternity clothing and nursery furniture. A few days later, after talking to his daughter, the father sheepishly admitted that the store had guessed correctly: she was pregnant.
Anecdotes like this will keep cropping up as companies mine customer data more deeply.
"As they try to become more customer-centric and provide additional advice, organizations will stub their toe occasionally," Busch says.
But if a bank repeatedly makes useful, worthwhile recommendations, its occasional missteps will be outweighed by the sense that it's looking out for the customer's best interest, Busch says.
And if bank customers are worried about banks' use of their financial data, they don't say so in surveys. In a study of 23,000 consumers in 23 countries conducted in late 2013, Accenture found that consumers trust banks far more with their personal data than telecom providers and Google. Close to half - 41% - said the type of company (out of a list of options) they trust most with their personal data is their bank. Less than a third (27%) said it was their mobile network provider, and less than a quarter (23%) said Google. Smaller numbers place their trust in Facebook (14%), Apple (12%), Amazon (8%) or Twitter (5%).