The world has been through a tumultuous year as consumers have faced the twin threat of a global pandemic and economic turmoil. The shift away from in-branch banking and cash transactions towards digital banking services, contactless payment technologies and mobile wallets has accelerated due to social distancing and lockdown requirements.
Drawing on the findings of a survey across six countries and interviews with relevant brands, this research explores evolving consumer attitudes to debit- and credit-related products and services offered by banks. It looks at how both incumbent and ‘challenger’ brands are evolving their services, marketing activities and messaging to build confidence and win trust.
Below are five of the key takeaways from this research.
__1. Contactless on the rise __
One of the biggest changes in consumer spending behavior in the last year has been the increased use of contactless and demise of cash.
Across the six markets covered by this research six in ten (61%) consumers say they are more likely to use contactless for payments since the start of the Covid-19 pandemic. Furthermore, more than half (54%) of respondents say they are less likely to use cash.
2. Rise of the challenger bank
While just under three-quarters (72%) of consumers still rely exclusively on their established or traditional bank, nearly a quarter (24%) of those surveyed say they are now using a more digitally-focused challenger bank, either on its own (6%) or as a supplementary bank (18%).
3. The appeal of challenger brands
The most significant driver of business for challenger banks is their low-fee or no-fee service, cited as a major attraction by two-thirds (66%) of consumers. The next most popular selling points are their reputation for customer service (59%), better digital experience (50%) and speed of account set-up (49%).
4. Shifting consumer concerns
The pandemic and accompanying recession have made consumers more concerned about the cost of their bank accounts and debit or credit card services. This was true for 38% of consumers overall, rising to 56% of respondents in the US. Across all the markets surveyed, 34% of consumers reported they are now more conscious of security.
5. Trust comes primarily from ratings and word of mouth
Consumers are selecting banks and card service providers based on their needs relating to cost, customer service and improved digital experience. Decisions are being made at a time of heightened concerns around cost and security in particular.
The research findings are very clear on how consumers are making important financial services decisions. They trust one another far more than they do advertising campaigns and social media. In fact, 86% of consumers report high or medium trust levels for word of mouth and reviews whereas social media and advertising score relatively poorly for trust.
1. Consumers double down on contactless
With the well-documented danger of coronavirus spreading via surfaces as well as through airborne transmission, it is not surprising to find that cash use plummeted in 2020. Consumers across the US and Europe have increasingly switched to contactless payments, according to our consumer survey.
Although contactless technology predates Covid-19, the pandemic has helped to drive its adoption as people seek to avoid the hassle and potential danger of carrying cash. Whether in-store or paying for coffee or a meal, people all over the world typically prefer to use payment cards and digital wallets which are increasingly linked to devices such as phones or even watches.
More than half of consumers across the six markets covered by our research said their use of contactless payment has increased since the start of the Covid-19 crisis (Figure 1), including two-thirds of those surveyed in the UK (66%) and France (67%). Overall, only 8% of consumers say they are making less use of contactless, presumably mainly those who aren’t leaving their homes.
It is only in Sweden, where social restrictions have been less severe than in other countries, that a majority (57%) say contactless usage has stayed the same. Averaged out across all countries surveyed, more than half of consumers (54%) report that they are less likely to use cash for in-person transactions since the start of the pandemic (Figure 3).
This move to contactless is helping to fuel the use of mobile wallets offered by contactless payment providers, particularly in the United States (Figure 2). More than a third of US consumers are using Google Pay (35%) and Apple Pay (also 35%), while more than a fifth (22%) are using Venmo from PayPal.
The figures are echoed by separate research from Mastercard that found that nearly a third of US consumers (and up to 43% for those aged under 35) have swapped from physical to contactless payments during the pandemic.
Figure 2 also shows that consumers in France are the least likely to be using any of the contactless payment providers listed.
Of course, contactless is not available everywhere and is generally limited to lower-value purchases. Hence, some of the gap left by diminished cash usage is being filled by increased usage of debit and credit cards (Figure 3).
Another obvious factor explaining decreased cash usage is the surge in online shopping prompted by the closure of stores. Consumers are around three times more likely to say their use of debit and credit cards is increasing rather than decreasing.
Fiona Anderson, UK Head of Everyday Banking at HSBC, points out that the shift towards contactless, mobile and online payments was already well under way before the onset of coronavirus. However, Covid-19 has been a powerful catalyst for the adoption of digital and mobile banking services.
“Covid-19 has accelerated the shift in customer behavior towards digital and this trend is expected to continue,” she said.
“There has been very significant year-on-year growth in mobile app users, mobile app log-ons and the number of mobile payments. We have also seen a trend in personal customers making more card payments and less cash usage. Contactless payments now make up a quarter of all commercial card transactions, compared to one fifth (19%) at the same time last year.”
2. Traditional and challenger banks
Consumer needs are evolving quickly as our lives become more digital, with an accompanying rise in contactless and mobile payment technology. Rather than a place to fill in forms, withdraw cash or pay in checks in person, banks now need to provide seamless digital experiences as well as providing faultless customer service remotely.
Traditional banks such as Capital One and Wells Fargo in the US and Barclays and Lloyds in the UK, are still the first port of call for banking needs because this is where a salary is most likely to be paid in with payments set up for regular bills. However, challenger banks played an increasingly significant role in 2020 and this growth is set to continue throughout 2021 and beyond with continued investment in fintech.
Sometimes referred to as ‘neo banks’, challenger banks are typically online-only brands that have been available to consumers across the US and Europe for several years. Examples of challenger banks include Axos, Atom Bank, Chime and Monzo.
Individual brands have differing propositions, but for the most part they seek to stand out with free banking and advanced digital features, sometimes offering customizable cards and free international payments.
In the US, nearly two-thirds (63%) rely on their traditional bank, while just 7% use a challenger bank on its own. However, there are now 17% who use both a traditional and challenger bank (Figure 4).
Across all the markets surveyed, nearly three-quarters of consumers (72%) still rely on a traditional bank. While only 6% bank with a challenger brand exclusively, nearly a fifth (18%) use both a traditional and a challenger bank.
An interesting aspect to this rise of digital banking and payment services is that it is no longer the preserve of millennials. According to payment spreading service Klarna, it has seen significant uptake in older users during 2020.
Samantha McCarthy, Marketing Manager, said: “For Klarna, the profile of the shopper has changed during the last months. Our fastest-growing demographic was 50+ years old. The largest group of online aficionados has traditionally been mobile-centric and digitally-native millennials so the pandemic has forced new habits and behaviors in shopping alongside most aspects of life.”
These new behaviors were particularly evident on Black Friday where the appeal of spreading the cost of purchases meant Klarna saw as much business in one day of Black Friday week in 2020 as it did across the entire week in 2018.
The survey showed that usage of challenger banks is significant across all age groups, though more among younger than older people, as Figure 5 below shows. Those aged 18-34 are almost twice as likely as those aged 55 or over to be using a challenger bank either exclusively or in conjunction with a traditional bank (30% vs. 16%).
3. Most appealing banking services and features
Our research shows that today’s consumers are significantly more likely to be using a challenger bank in conjunction with an established brand rather than instead of one, though this could change as newcomer brands gain more traction and persuade consumers they are the only provider they need.
Clearly, there is inertia in switching from a traditional bank, but there is a desire to check out what challengers have to offer which is prompting a quarter of the market to sign up with a challenger bank either as a main account or, more usually, as a secondary account (Figure 6).
Perhaps even more tellingly, consumers using a challenger bank are three and a half times more likely to say they have used its services more in the last year than they are to report decreased usage (44% vs. 13%).
Figure 7 shows that lower costs are the biggest draw of a challenger bank, regarded as a ‘major attraction’ by two thirds of consumers (66%), ahead of customer service reputation (59%), better digital experience (50%) and speed of account set-up (49%). Consumers are loving cheap or free banking with good support and a way of seamlessly organizing their money when they are online, whether on PCs, laptops, tablets or phones.
Just as interestingly, the services many challenger banks advertise prominently are not as appealing. Travel offers are a major attraction to less than half the market (43%), and better card design has major appeal for just 23% of consumers. Nearly half of consumers (46%) claim that better-looking cards are ‘not an attraction’ though there is clearly enough interest to make it a worthwhile unique selling point (USP) for some brands.
While novel card designs may only be of significant interest to a minority, the banking experience and customer service offered by a no-fee or low-fee challenger are clearly top priorities. It is here that neo bank N26 realized it could leverage its digital-first roots by empowering customers to bank safely without needing to visit a branch or even receive a card in the post, Chief Growth Officer Alex Weber reveals.
“During the height of lockdowns across Europe, we saw postal services interruptions affecting multiple areas across the continent. As a result, getting cards to customers quickly wasn’t always possible,” he said.
*“This is when we quickly introduced a feature that would allow new customers to add a digital version of their N26 card to their mobile wallet immediately upon sign-up – a process which takes most customers only eight minutes, so that they could already make contactless and ecommerce payments while waiting for their physical card to arrive. We are looking to expand this capability to empower not just cashless, but also cardless payments and will be expanding our virtual card capabilities in the near future.” *
Another obvious advantage of being an online and mobile bank, without physical branches, was less disruption. Banks and fintechs that are used to offering a remote service could still be there for customers, as they always had been, according to Kabbage, An American Express Company.
“We doubled our customer base in just four months as we became the US’s second largest processor of Paycheck Protection Program loan applications for small businesses,” said Kathryn Petralia, President and Co-Founder of Kabbage, An American Express Company.
She added: “When customers realized their banks closed shop and stopped accepting PPP applications, we were able to keep offering our services online. Customers are going to remember who was there for them in the tough times.”
Key factors for choosing a debit or credit service provider
The top three features consumers find most attractive in a challenger bank specifically (Figure 7) closely mirror the three most important criteria for choosing a debit or credit service provider (Figure 8). Low fees or a low annual percentage rate (APR) is the key factor picked out by half the market (50%), with a strong and trustworthy brand (42%) in second place, closely followed by an easy online and mobile experience in third (41%).
Again, as with choice of challenger bank, some of the features flagged up prominently in marketing communications do not score as highly as simply being a low-cost provider people can trust to provide a great digital experience. Flexible payment terms, for example, was the least popular option for choosing a provider and good ethics and rewards schemes scored relatively low.
Nevertheless, Ricky Knox, founder of challenger bank Tandem, believes that when so many new providers are offering free services, strong corporate social responsibility credentials are going to prove more popular.
“Tandem Bank was founded with the mission of helping to solve real people’s money problems and so this notion of sustainability, both financial and environmental, has been at the heart of our business from day one.
“We acquired an established green home loans business in 2020 and we can now help many more customers reduce their environmental impact by accessing the funding needed to green their homes. More people want to take action and not just talk about the climate crisis and we believe that the green banking message is one that the market is now far more aware of and open to."
4. Cost and security concerns make trust vital
It is not too surprising to find consumers are cost-conscious when it comes to banking and card providers. After all, these are the services through which they manage their finances.
Clearly, the global pandemic and the accompanying economic crises have made cost concerns more important than before. In fact, 38% of consumers say that since the start of the pandemic they are now more concerned about costs (Figure 9), rising to 56% in the US. Covid-19 has not only focused minds on charges, with 34% of consumers now reporting that security is more of a concern to them than it was before the pandemic.
Consumer choices have always been driven by the cost of financial services but a large swathe of consumers is now more concerned than ever about security. Trust in financial services providers is more important than ever.
This is partly a reaction to a spike in online financial scams which had already seen one in three Britons targeted by the summer of 2020, according to Citizens Advice research. In the US, scams rose by 70% in the second quarter of 2020 as much of the world endured some form of lockdown measures. Cyber criminals have been seeking to exploit the pandemic by tricking the vulnerable to make payments into fake investment schemes as well as pass on their log-in credentials so their accounts can be targeted.
5. Trust comes primarily from ratings and word of mouth
When it comes to where they place their trust, consumers are very clear. They are most likely to trust one another, as is shown in Figure 10.
Word of mouth (39%) is the source of information people trust most highly, with consumer ratings and reviews just behind (36%). When ‘high’ and ‘medium’ levels of trust are combined, it can also be seen that word of mouth and consumer ratings are equally valued (86%).
Information on company websites and aggregator/price comparison sites are in third and fourth spot, with magazines/newspapers/media making up the top five.
Marketers at financial services providers may want to take note that social media and advertising are highly trusted by just 14% of consumers, suggesting that these channels in isolation are not enough to build trust among their target audiences.
The findings of the research are crystal clear. People have most trust in conversations with people they know, and in ratings from other consumers, when making decisions about debit and credit services. It therefore makes sense for consumer finance brands to reference good consumer ratings and reviews in their advertising and social media campaigns to make these channels more effective at building trust.
Now is the time for banks to focus on building trust with consumers
After an unprecedented year for banking services, TSB Chief Marketing Officer Pete Markey can look back and recall how the on-going health and economic crisis has impacted the bank. Just before the full UK lockdown was called in March 2020, the bank had been about to launch a major campaign. Plans had to be amended instantly to reassure customers that they were being supported through unprecedented times.
“We were about to launch a major new brand-led advertising campaign and so suddenly, like many others, had to change very quickly.”
He added: “We changed our messaging to how we were here to help customers through some very difficult times with details of loan repayment holidays and advice on how to better protect against fraud.
“We’ve noticed that people have obviously switched more to digital banking and using our app, so we’ve been supporting customers with that. We’ve also noticed that spending is down because people can’t spend on nights out and entertainment. There are two main camps. There are some customers that are having a really hard time because they may have been furloughed or lost their job. On the other hand, we have customers that are not so financially impacted and they’ve actually been saving a little more.”
It was a similar situation at NatWest where the bank realized it would need to change course quickly to focus on customer needs and, in particular, to stress to vulnerable clients that they were being fully supported.
“We were the first in the UK to offer vulnerable customers a fee-free cash delivery service to their door, with over £4m delivered to customers since it launched in March,” says Hazel Harper, Journey Developer at the bank’s Effortless Payments team.
“We established a dedicated support line for customers over 70 or in isolation. This line was set up to help those most in need and is open 8am-8pm, 7 days a week. We also launched our Companion Card which can be topped up by up to £100 and lets customers pay safely when someone else is shopping for them.”
The global pandemic shaped 2020 and will continue to cast a long shadow over at least the first half of 2021. As such, this switch to contactless, mobile and online payments is only set to continue.
Consumers need engaging and seamless digital banking experiences to manage their finances and shop online, and therefore traditional banks will need to keep on raising the bar with their digital services as well as doubling down on customer service to keep up with the march of the challenger banks.
Given that the health crisis is being accompanied by difficult economic circumstances, these new banking decisions are being made at a time of heightened concern over cost and security. This is prompting consumers to make choices based on what people like them think. They are listening to word of mouth and ratings and often tuning out the noise of advertising and social media.
The learning for banks is very clear. They need to combine two attributes. The digital banking services they offer must offer an excellent experience and the customer service they offer must be exceptional. While digital banking features are essential, banks cannot rely on technology alone. Consumers are demanding an intuitive suite of digital features from a bank that can demonstrate trustworthiness and security.
Banks must listen to the voice of the customer here and double down on their messaging relating to delightful digital banking experiences consumers can trust in.
London Research was commissioned by Trustpilot to carry out nationally representative surveys of 1,200 consumers across the US (n=200), UK (n=200), France (n=200), the Netherlands (n=200), Italy (n=200) and Sweden (n=200) in December 2020.
The research was conducted using a Toluna research panel. London Research also carried out a series of interviews for this report.
London Research and Trustpilot would like to thank the following people for their help in compiling this research:
- Fiona Anderson, UK Head of Everyday Banking, HSBC
- Hazel Harper, Journey Developer, Effortless Payments, NatWest
- Ricky Knox, Founder, Tandem
- Samantha McCarthy, Marketing Manager, Klarna
- Pete Markey, Chief Marketing Officer, TSB
- Kathryn Petralia, President and Co-founder of Kabbage, An American Express Company
- Alex Weber, Chief Growth Officer, N26