What Consumers Really Want from Financial Institutions: Your 2023 Roadmap to Success

Transcript

0:00 - 10:09

Crystal Anderson: Hi everyone. Welcome to our live webinar, “What Consumers Really Want from their Financial Institution”.

Please use the chat function for any questions that you have or any discussion topics and we will take those at the end

I am Crystal Anderson, vice president of product at MX and today I'm going to be sharing with you the results of our consumer research

We're going to talk about the features and the functionality that consumers really want from their financial institutions.

We'll talk about how you meet those rising demands of sharing data sharing and data ownership and striking the balance of digital digital innovation as well as security.

After I share our research results, Jane Barratt, our Chief Commercial Officer for financial institutions, is going to cover what this means for you for financial institutions.

So let's jump right in.

Every quarter, MX publishes a report on consumer trends and that helps us understand as an industry how we should be thinking about things this quarter. Our topic was focused on what features and functionality consumers are looking for when it comes to financial services.

As we combed through this data, we pulled out three key themes that financial institutions should take into consideration In 2023. And those top three insights and trends were that consumers are demanding more when it comes to their data ownership. They want to take control and they want more ownership of sharing who they're sharing it with.

Financial inclusion and literacy is the other trend that could really help to unlock stronger engagement and build more customer loyalty.

And then third, the winners in 2023 are going to be able to provide solutions that are instant, personalized, and easy.

So let's jump into data ownership and sharing our first trend. One of the most common topics that we heard in this research and in this past year was Open Finance and Open Banking and consumers are starting to take notice overwhelmingly, consumers agree that they own their data, their financial data specifically and they should be able to control who has access to it.

In fact, you'll see there, 89% of respondents actually said, I own my financial data and I should be able to control who has access. 

While this is the case, more than half of consumers, 55%, also agree that they aren't sure what companies or institutions have access to their financial data. Gen Z at 80% and Millennials at 77% agree that they expect to be able to see all of their financial data in one place and as regulation continues to move forward, we're going to see this topic come up more frequently now.

The second trend, as we said, was financial inclusion, and this is about building products that are going to improve financial wellness. Stronger financial wellness tools and insights that come from them could become a key differentiator in 2023, a lot has changed in this past year.

When we look at spending trends and spending habits, but we look at household finances as well and a growing share, consumers are falling behind on monthly expenses. We used to talk about having enough in emergency savings and the trend we're seeing is more torque, even being able to control their monthly expenses and pay for their monthly expenses as we see that inflation continue to rise.

We also see overall credit usage just climbing. It's higher and it's especially higher for groups such as low income adults and single parents.

Now, when it comes to financial strength, in our earlier research, we did earlier research this year, we shared that consumers still need help. The majority said that they are saving less money.

So we just talked about that and that their current financial institution is shifting for the worse. Those trends show that now more than ever it is so important for us to be there for our consumers.

Now, the three most wanted financial wellness features, you see there on the screen, it's educational programs to teach you how to become financially stronger debt repayment tools. We said that they're more in debt, like calculators to estimate how much time it will take to save money or to pay off debt.

And then those automated insights that will, that they can be created based on that financial data that they're giving access to now.

The third trend is the instant and personalized experiences, consumers want and demand more in this space. And this is where we really see those modern struggles and financial stress come into play. They are changing consumer's expectations of their financial institutions rather than staying with institutions that they've had for years.

They are looking to make changes, especially if they're financial providers aren't providing them those tools that they need to succeed financially. So really thinking about changing regardless of the history of that relationship.

This really shouldn't be a surprise though, considering that the financial strain individuals have experienced in the past few years, like COVID-19 and the rising inflation rates. There's just more of a demand and more concerns there from the consumer's perspective and within this financial reality, this truly very somber financial reality.

There is a silver lining for financial institutions more than ever. Companies, they can leverage financial data and they can leverage those digital tools to better understand their customers and drive that consumer loyalty. They can do that by enabling greater financial health practices.

Now, consumers aren't just satisfied with the financial functions that they have today. And so this is where we really start to look at what consumers really want. They're not satisfied with just balances and transaction history and monthly statements.

This research shows that consumers want more, they want more from their banks, they want more from their financial institutions. They need a financial services provider that delivers personalized experiences, personalized insights and notifications that really support their financial needs. They need actionable data and that actionable data helps them to understand their finances and reach their goals.

So what happens if you don't act as a brand and act upon your product promise? When asked if they would seek a new financial providers we said and if they're specifically, if their current provider wasn't providing those personalized insights and delivering on the features they most wanted, specifically where we see this.

This emerging is with Gen Z and Millennials, 60% of Gen Z and Millennials said that they would switch their financial provider and 75% of them are saying that they want those, they not only want those tools, but they also want the proactive alerts and insights to help them reach their goals.

So with all of that said, that's the results of our research and the trends that we saw. We also asked what consumers want while across all of the different generations within this study, they said they wanted better money management tools, but we did start to see some differences between or among the different generations.

So let's look at Gen Z: they want better money management tools that help them connect outside financial accounts. They want this because they want to see all of that financial data in one place, 31% of them. In fact they want integration with digital wallets like Apple Pay and google pay and they want to order a personalized card. Now this isn't just having their name on it. They want to be able to select the design, they want to be able to put their picture on it.

So that's what we heard from Gen Z, For millennials, it's a slightly different story. You'll see ordering a personalized card is there at the top. So when they think about better money management tools, 32% want that ability to order personalized card. 31% want integration with digital wallets like Apple pay and Google pay. And then 27% of them want to be able to connect those financial accounts outside so that they can see everything in one place with their financial institution.

For Gen X, you'll see some other features start to emerge here, so we still have ordering a personalized card at 41%. 29% want that instantly issued a virtual card and 29% want to be able to open new accounts online. 

So this is where security really becomes important for Gen X.

For Gen Z, they want to be able to download their financial data, so not just see it all in one place that they want to be able to download it as well. Security starts to really emerge again here where 40% require multi-factor authentication when engaging with their digital experiences and 36% want the ability to restrict transactions above a specific amount.

You can start to see where that focus is really shifting And when it relates to again better security and control. Millennials — 39% want the ability to download their financial data as well. They want to be able to get emails on the transactions that are made. 33% said that and then 31%, they said they want biometric login options and then related to better security and control.

For Gen X, they also want biometric login options. They want the ability to download their financial data and they also require MFA. 

So what does this mean to you? As I mentioned, Jane Barratt is going to share with you what this means from a financial institution perspective.

And again, she is our Chief Commercial Officer for financial institutions. Jane, over to you.

 

10:09 - 19:34

Jane Barratt: Thank you so much, Crystal. And good morning everybody. As I'm sure everyone watching is keenly aware, this year's economic outlook for both the U.S. and for much of the world is being defined by a couple of things.

We have decelerating growth, rapid monetary tightening, and moderating inflation. So from a growth perspective we have Bloomberg saying that we should be expecting somewhere close to 1.2% versus 3.7% last year. That's a pretty significant cut in growth forecasts.

The Fed is optimistic about bringing inflation down with the goal of a 2% annual rate of inflation. However, forecasting is at about 2.8 right now. And that's significantly under where we are now.

So when you think about U.S. households, when you have this combination of slowing growth and high inflation, we have to be cognizant and assume that the majority of U.S. households will be struggling this year.

So before the pandemic, we saw people saving around 8-9% of their income on a monthly basis. Today we're seeing a savings rate of about 2%. That's a huge indicator that people are struggling in the face of both high prices and elevated interest rates. So the cost of debt is significantly more the last time Americans say this little was 17 years ago.

And then we also have a great survey from our friends at the Financial Health Network that has concluded that there's going to be an increase in the proportion of households who said they weren't making their regular expenses and a decrease in the proportion of households that said they had enough to cover three months of living expenses.

So these are all pretty giant indicators that inflation and interest rates are going to continue to, you know, really move the needle on how people are spending, how people are saving. We have to assume there's going to be a holiday hangover from spending in sort of November and December last year. We're also seeing this in both our own data and in research out there that — the people who have credit card debt, 60% of them are now holding it for at least a year. So that's up to 10% points from this time last year.

And in addition, you know, we talk about buying and paying later a lot, but about 2% of all online card spending was BNPL, which doesn't sound like that much, but it is a huge increase from 0.3% a year earlier.

So we have a lot of moving pieces that are all pointing to The fact that it's going to be a title year for people. And it's not really a surprise that two in three Americans don't expect their finances to improve this year. And in fact about 11% of adults expect that their finances will get significantly worse.

So this is something that we all really need to be considering when we're both building money experiences for our customers as well as engaging, you know, how we speak, what we say. We just got to be again very cognizant and also, you know sympathetic to the real challenges ahead.

So within these challenges again for anyone, and this isn't just financial institutions within the fintech ecosystem. Generally there are some regulatory moves that we all should be very aware of.  The first of this is Dodd-Frank Section 1033 coming out the CFPB. You know, we are moving towards rulemaking to enable secure access to financial data and people's ability to share.

So everything that Crystal was calling out earlier that people say yes this is important to me, we expect to see that made into a role for any financial institutions who haven't explored or invested in Open Finance just yet.

Like this really is the year where we need to be doubling down and making sure that it's a strategic priority. And it is the whole ecosystem needs to adjust to these new rules around data access and data sharing.

The second key regulatory trend is Buy Now, Pay Later and even like P2P payments, we've seen so much more scrutiny in the payment space. But one thing that hadn't really been weighed up was how much more risk is coming into the ecosystem. So we do expect to see more movement around BNPL and P2P payments. 

And then the last sort of big move that we've seen is the OCC standing up its Office of Financial Technology. So this again is a huge indicator that you know, one of the key regulators is going to be sort of inflicting increased scrutiny and participation in broader areas that do impact the safety and soundness of the ecosystem.

So again you may think that policy and regulations aren't in your wheelhouse or your job but it really is everybody's job to keep an eye on these things knowing that they can and will impact. 

So what does this mean for everyone? And especially from a financial institution perspective, these industry changes in macroeconomic conditions present a really strong opportunity to differentiate this year. 

So I mean the most obvious one is at the interest rate level. So the Fed has been raising rates at the fastest pace that they have in the last 40 years. We're seeing money market accounts getting levels that people haven't seen about getting interest rate levels that people haven't seen since 2008. But the interesting part here is that there is already a huge disparity. There's only a handful of I would say larger institutions that are paying above 3% to depositors and the average right now is still .19% as of last month. So it is a massive spread between what the market rate is and then what is actually being paid out to deposits.

Interestingly we're seeing this was coming out of J.D. Power — 26% of consumers have moved money to another institution in the last 30 days. And that is a really strong indicator of you know you offer the interest rates, people will move their deposits.

So, and then as you heard from Crystal, we are seeing people wanting more control over their finances and financial data. People want the ability to track and manage their finances with a more holistic 360-degree view. So as owners of financial data, it is really important again for financial institutions to have visibility into what your customers are doing and then for the customers to have visibility as well.

So we can see that like as a massive investment in future proofing relationships, future proofing deposits and future proofing, you know, modern customer experiences.

Then last we see people being very intentional this year. There was somewhat of that revenge spending trend coming out of COVID where people were a lot more YOLO, like I've been stuck home for two years so let's go. We do see that they're getting dialed back a little. But people being more intentional about curating experiences — selecting those that are delivering value and abandoning those that don't. So we see highly personalized digital banking experiences especially with financial health and well being at the core as being such a winning strategy for this year.

Like, I mean, I've been saying this for many years, but financial health isn't just good for business. It is a great or a good way to do business to engage with people. It's a great way to increase your revenue, increase profitability and differentiate you in the marketplace.

So I think in conclusion, we see 2023 as a pretty unique market in which financial institutions can both differentiate and grow through incorporating these ethical data principles through the privacy preserving tech offer — bring higher yields on deposit accounts and then giving these great personalized digital banking experiences.

So we believe we can empower the world and more specifically your customers to be financially strong this year while achieving unique business goals and objectives in both the short and long term.

So before we open up for Q&A, I wanted to let you know that this research will be available online and the research will be emailed to all attendees. I want to thank everyone for joining.

It's great to see so many customers and friends of MX here today for the first of what we hope as many we have been asked this year and I hope to see you all again soon. And, with that, back to you, Crystal. I believe you've got some great questions come through in the chat.

 

19:34 - 19:59

Crystal Anderson: Thank you so much for sharing all of that, Jane. So the first one is a question for you.  I'd love to hear your take on how the CFPB’s stance on Buy Now, Pay Later and P2P might affect revenue streams for banks and credit unions. Do you think it will be more favorable to the trusted institutions or to the fintech companies more aggressively pushing them? What are your thoughts on matching?

 

19:59 - 20:44

Jane Barratt: So it isn't a win lose situation with the CFPB. I think if there's one thing we've seen has been cautiousness around rulemaking so that we're not stifling innovation, right? People have voted with their feet and their wallet, they want to use these products and so it's probably not going to be favorable falling one way or another.

But I think there will be increased scrutiny of the providers of BNPL, just to make sure that the terms are more transparent. For example, these would be, this is just, you know, conjecture, but that things like terms implications and you know, what happens if you do default, What happens? Seeing that become a lot more from the center, let's say.

 

20:44 - 21:39

Crystal Anderson: Yeah, really great points. I did have one question about the resource, the research itself, I'll take that one really quickly and then Jane, I do have another one for you.

Can you talk more about what it means to have a personalized card? Is that personalized offers? I will be really candid and say this was probably the thing I was most surprised by because it felt like very table stakes. But it was not personalized offers. It really truly was about being able to pick your design or to put your picture on a card. So that is that is what all of the generations are asking for.

So probably the most surprising to me… Actually, Jane, this one again, this one is for you, have you seen better Open Finance be a catalyst for higher loan growth? Do more people come to loans because of the seamlessness of the process?

 

21:39 - 22:59

Jane Barratt: The person who said this question said they're just really having a hard time believing that Open Finance is really moving the needle related to lending so a lancer more empirically first just lending.

But one thing that we have seen is that institutions that open up APIs to enable better data access — There was a fear and a thesis in the early days that if you let people take their data wherever they want, you're going to lose business. What we've seen with the number of partners that are doing real volume through these APIs is it there's increased pretension, increased deposits and sort of less likely to sort of lose share of wallet, more likely to build share of wallet and sort of within that empirical finding there is loan specifically, I think we would have to dig in on a loan growth.

So applications, but yeah, I think the engagement that we're seeing is really positive and it may well be that it is early adopters, but these are, you know, tens of millions of people and calls being made. So you know, we've got some some pretty big data sets.

 

22:59 - 23:54

Crystal Anderson: That's great. Okay, I'll kind of speak to this and then we'd love to hear your thoughts on it as well, Jane. Do you have any research around retention or expansion associated with those firms that offer financial wellness versus those that don't? So they're looking for proof points of ROI.

You know, I think we heard a lot of it in the research as you said. I love the way you said it, Jane — consumers are voting with their feet. And I think now more than ever across all of the generations we're actually seeing in the research is that they're saying that they'd be willing to leave a financial institution or credit union that they've been with for years if they didn't offer those tools, if they didn't offer the things that they need in order to improve their financial situation. Those are the actual numbers. I don't know if you have anything more to share their, Jane, but again, I think we're just hearing more and more.

 

23:54 - 25:05

Jane Barratt: Yes, I'd be willing to leave. And I also think the ability to choose who you share your data with and see all your data in one place, that's another one of the features that they're really demanding of their institution.

So I mean, the only thing I'd add here and I say this with love as a financial educator myself, we've got to stop conflating wellness with financial education and literacy like that is a part of it. But the experience is wellness. You're giving someone multiple options for, you know, debt reduction. That's a wellness initiative.

You're giving someone the ability, you know, to, with very little friction to move money from checking into savings or investment account. That's a wellness initiative.

So the experience holistically is wellness and that's and we again, like I say, with love as an educator, we we often run up against the wall, we tried this educational thing and we didn't see any ROI.

It's like, well you can't put a blog post out there on what interest rates mean and expect deposits to go up. So I think if we can, well, make it a personal goal this year, like stop talking about wellness as education would be, would go a long way for all of us.

 

25:05 - 25:38

Crystal Anderson: Yeah, yeah, very good. I did have a note from someone saying doesn't personalize card also mean identifiers like preferred name and not just customized images. Absolutely, I was sorely missing in not mentioning that. So it is also about the ability to choose their preferred name. So really good call out. Thank you from the audience.

Let's see another question for you, Jane. What are thoughts about digital lending and distribution as the credit cycle continues to tighten?

 

25:38 - 27:10

Jane Barratt: So this is gonna be, I think one of the more interesting things to watch play out this year, it has been so easy to apply for credit in so many different places.

And if, you know, we're starting to see people's payments slowing down potentially impacting credit scores. There may not be as much willingness for just the pure online application. I would say there's especially people are feeling anxious and this is again, not research based, but you know, human behavior based.

Are they more likely to go to an institutional company that they know well where they can talk to somebody where there is, you know, wellness like on the table and discuss discussions to be had around repayments and things like that?

So there's still a long way to go in terms of using data for credit applications so that it can be more seamless, but at the same time will this year see more of a swing towards trusted brands.

And we got to the 28-minute mark without mentioning crypto but that's, there is certainly a shakeup in the industry just around trust. So whether that will expand over to the lending space is to be seen. But I could see just with loans tightening generally, it may well be that the more trusted names have a better shot at getting the loans good, very good.

 

27:10 - 27:41

Crystal Anderson: Well, let's shift to savings for a moment. You mentioned the last time consumers saved this little was 17 years ago. Obviously technology is different. Now what might be different this time around and how can financial institutions enable consumers to maximize savings or at least combat the negative effects of a recession economy? What are your thoughts on that, Jane?

 

27:41 - 29:14

Jane Barratt: It's really hard to combat trillions of dollars in spend. That takes money out of people's pockets, right shiny objects. However with, and this has been true of the last couple of recessions, the people who can save do start to, you know, hunker down and say, which is obviously not great for the economy either because then you have growth and higher unemployment, but what institutions can do specifically is to really make things more seamless.

And you know, we've been talking about stuff like you know what to but negotiations for a long time like why can't we like we have the tech already, it's just not part of the business where we can automate more savings at a, at a really mass scale, not just round up, not just these little things, it's just like, you know what set a rule that when you're checking accounts get to X amount, just put it straight over into savings and then put it to work I think because interest rates have been so low for so long. The shine really went off savings.

We have a whole generation of people that don't know what it feels like to get money in their account every year regardless of how much money is in there because saving rates have been so low.

So there may need to be a lot more engagement again from an experience level just to show the impact of what happens when you do put this money to work through either higher interest rate savings accounts, money market accounts or through investing just to kind of add on to that.

 

29:14 - 29:53

Crystal Anderson: And this relates to another question that we received in the chat, given that and then also given what we're seeing in the research is that now it's become an issue beyond saving and now it's even the ability for day to day spending and covering day to day expenses.

So what would your advice be for financial institutions? Should they be thinking about building out digital wealth management tools and finding creative ways to get folks to save or should they be focusing on more, the more immediate problem of covering expenses and day to day spending? What's your, what are your thoughts on that?

 

29:53 - 31:24 

Jane Barratt: Yeah, I don't think it's an either or starting with better cash flow management is fundamental and this is why we need to see, you know, data aggregation, that's why we need to see 3 60 degree views of customers financial life because cash flow almost regardless of where you are with your income and your spending habits, things sneak up on everybody and again, we sneak up in a negative way impacts your credit score will impact your credit rating, will impact your cost of borrowing.

So we need to be thinking about, you know day to day for everybody from a cash flow perspective, you know, having great net worth tracking tools is something as well that is inherently motivating or you know, well whether regardless of where you are, but to see where you wanna be, where you are right now and having tools like debt reduction scenarios.

So debt planning and cash flow management, all of those things often get left over for, even if it's for affluent mid market. It is oh, that's cash flow is the need for people who were working paycheck to paycheck. Guess who is working paycheck to paycheck? People in the Affluence phase.

So there's a lot that we do need to do from an experience perspective that can really help move people from that, you know, earning saving, spending, investing cycle Good.

 

31:24 - 32:23

Crystal Anderson: Thank you. We received a couple of questions about financial inclusion and you had mentioned before. I wholeheartedly agree that financial wellness is beyond education, but so is financial inclusion. It's beyond blog posts as this commenter said. So the question is about any winning strategies that you're seeing.

But let me add on to that — something else that we've heard because we saw in the research that groups such as women and Hispanics are twice as likely to be worried about their finances. And so thinking about our research, wellness and inclusion being beyond education And then financial inclusion

Are there any winning strategies you're seeing within that space, Just generally speaking, or specifically helping women Hispanics and other groups that are feeling more concerned about their finances now, more than ever? 

 

32:23 - 32:32

Jane Barratt: I think. I mean, I'd love for you to type that just from the personalization. Yes, perspective, that's a winning strategy.

 

32:32 - 33:58

Crystal Anderson: You know, one of the things that we talk about is the words that you use are so incredibly important. We have a client who is has built a digital bank that is very specifically for women. And in all of the research that she has shared with us and and that we see is using acronyms and using language that is not relatable and maybe even language that they don't understand and and not to be not that they're not smart, not that they don't understand complex concepts, but it has been, you know, the financial literacy and fine education and the industry itself just has been very tailored to a more complex type of language. And so not just personalization, but also how you personalize it and being very intentional about how you talk to consumers

And then, as you were saying very specifically on personalization, using data to create a very contextual and meaningful experience for them. So that you are sharing insights that they can take action on right away. I think that's another area that we're seeing in terms of inclusion. you can make sure that you're using their data to make it very relevant to them

Anything else that you would add, Jane?

 

33:58 - 34:58

Jane Barratt: Yeah, I think it would just be more advice. We tend to have a lot of data and metrics around people's engagement, but I would recommend that we go a step deeper.

What are people coming to do because engagement metrics are fundamental to understanding if your strategy is winning or not, because often if it's just like, you know, impressions on our website or visits to mobile, it's like they've gone up, therefore it's a winning strategy.

But what are people actually doing, are they just doing balance checks? Are they checking transactions or are they going into tools? Are they setting goals for themselves? Are they watching, watching the needle move? And that is something that, you know, if you build it, they will come has never been a great strategy.

We've really got to continue to optimize and continue to engage to ensure that what you've put in place from a whether it's personalization or wellness tools are actually being used to be able to improve outcomes for your customers.

 

34:58 - 36:10

Crystal Anderson: Really great. Really great point. We have one more question. I will, I'll share this and then we're going to wrap up and then, Jane, I'll ask if you can just remind folks when they're going to get access to the research. We received a question from someone and they asked about MX and how specifically we fit into online banking providers. Is it a separate login or is it within the online banking experience? And so very specific about how MX integrates and you know what I would just say is that we see ourselves as a true partner here.

In many cases, we have great relationships in most cases we have great relationships with online banking providers and more integrated directly with them. But if that's you and you're thinking about consumers, you can feel free to reach out to us.

I know Jane would love to speak with you and and let's start a conversation about how we might make a difference, you know, empowering the world to be financially strong is something that we are so passionate about, it's our mission. 

And so if you have questions about how we can help there, please do reach out and then with that, Jane, again, if you can just remind folks when they will be getting access to the research and we thank you so much for joining us today.

 

36:10 - 36:14

Jane Barratt: Okay, I know my screen's frozen, but you can hear me. Oh there we go, I'm back.

 

36:14 - 36:15

Crystal Anderson: Awesome.

36:15 - 36:44

Jane Barratt: Yeah, so we will be sending out the research today right after this to everyone who attended and signed up. Always happy to go deeper and deeper into that last question, what does this, you know, what does it look like? How do we integrate? Always happy to set up demos so we can show, not just tell, but wanted to thank everybody for joining.

Today has been a great conversation, and thank you so much Crystal for taking us through all that research.

Thank you.

 

36:44 - 36:47

Crystal Anderson: Okay, have a great day, Everyone, Take care. Thanks for joining.