Digital-Only Financial Products

The Rise of Digital-Only Financial Products: Impact and Opportunities

In recent years, the financial sector has witnessed a significant transformation driven by digital-only financial products and platforms. These innovations rely on real-time access to data, which not only benefits customers but also presents new opportunities for marketers. This shift towards digital banking, often referred to as neo banking, insurtech, and mobile-only financial services, has reshaped the financial landscape globally. In emerging economies like India, these changes have even more profound implications, with new entrants leveraging tailored marketing strategies to gain a competitive edge.

Banking at Your Fingertips

In 2019, JP Morgan Chase made the decision to discontinue Finn, its digital-only banking initiative. One of the primary challenges it faced was the difficulty in distinguishing its digital banking services from its traditional branch-based offerings. To succeed in the realm of non-branch banking, it’s crucial to pass on the cost savings achieved by eliminating physical branches to customers in the form of lower fees, enticing offers, and higher returns. This proposition should manifest through location-specific offers, communicated clearly and consistently across websites, social media platforms, and paid advertising campaigns. Establishing transparent communication about services, benefits, returns, and value-added offerings will build credibility for digital-only banks and financial service providers in the long run.

Carving a Niche and Defining Territory

According to CBInsights, over 50 percent of millennials in the United States prefer accessing a full range of banking services through their mobile phones. They are also 2.5 times more likely to switch banks compared to previous generations. This shift is being driven worldwide by customers aged 18 to 34, who are embracing digital-only challenger banks. In India, several leading banks offer digital-first services, such as Kotak Bank, to cater to this trend. Marketing banking products to millennials has always been challenging, as they often have unique financial goals and require personalized guidance based on their specific life stages. For example, Chime, a California-based digital-only bank, has created a dedicated inbound marketing platform focused on providing financial advice to millennials.

Digital banks are reaching out to their target audience through social media and content channels such as Facebook, Instagram, Twitter, and YouTube. They partner with demographic influencers and celebrities and communicate in the language millennials understand.

Data: A Crucial Value Driver

Digital-only financial products and platforms thrive on real-time access to data. This data’s strength becomes a significant enabler for both customers and marketers. Marketers can target digital-native prospects, the primary target group, with personalized messages and offers based on historical demand signals from digital channels. This approach increases the likelihood of conversions. Furthermore, marketers can target existing customers with cross-selling and localized offers, creating greater differentiation and value. Backed by machine learning algorithms, digital banking platforms can provide real-time investment recommendations and spending alerts. All these measures lead to higher levels of customer engagement and loyalty.

In the absence of a physical branch experience, marketers can leverage site and app analytics data to continually enhance the customer experience. This includes addressing technical glitches, reducing page load times, and improving on-page or in-app elements that cause friction between the bank and the customer. “Friction will be the biggest killer of bank revenue in the next ten years,” writes Brett King in his book “Bank 4.0.” With the right measurement techniques, well-defined key performance indicators (KPIs), and seamless user experiences across devices, marketers can bring the customer satisfaction success enjoyed by companies like Uber and Amazon to the digital finance sector.

Why is it Essential for Developing Economies?

A study by the McKinsey Global Institute reveals that digital accounts are 90 percent cheaper to operate than conventional accounts. With increased mobile and internet penetration, digital-only banks and financial products can promote financial inclusion while onboarding lower-income customers in emerging economies like India.

Full-service digital bank accounts launched in India in recent years offer higher-than-average interest rates, no minimum balance requirements, and free online money transfers. Similarly, numerous players in the burgeoning Indian fintech industry, including InstantPay, Namaste Credit, and Payzello, provide SMB credit and personal finance management services to customers. The growing ecosystem of digital-only financial providers will bring greater financial inclusion to customers and increase competition in an already competitive market. Marketers need to view this as an opportunity to refine their online messaging for core product offerings and advertise with a multi-layered, targeted approach based on demographics, devices, and predicted psychographics. This approach will allow them to co-create value for both businesses and customers.

The rise of digital-only financial products is reshaping the financial landscape worldwide, with profound implications for marketers. By leveraging data, tailoring messaging, and focusing on customer-centric approaches, these digital financial innovations are not only meeting the unique needs of millennials but also promoting financial inclusion in developing economies. Marketers who adapt to this evolving landscape will be better positioned to navigate the challenges and opportunities presented by the digital financial revolution.