Why Bank and Utility CEOs Could Soon Have a lot More in Common

Institutions such as JPMorgan Chase and Wells Fargo under attack from fintech startups, many of them based in Silicon Valley, aren’t just losing the odd punter. They’re bleeding customers.

A new survey of more than 137,000 customers in 21 countries by Bain & Co. found respondents bought new banking products from a competitor rather than their primary bank one-half to one-fifth of the time. These “hidden defections” were weighted to high-margin lending products and typically went to competitors—including other traditional banks—that offered better digital marketing, sales and services.

“Retail banks face an unattractive future,” Bain reported. “As fintechs and technology companies siphon off customers seeking high-value products and services—such as credit cards, loans, insurance and investments—traditional banks run the risk of becoming just another big, regulated utility.”

Primary banks still accounted for nearly two-thirds of all purchases on average, but those were mostly for low-value deposit accounts, of which they won 77%. For lending purchases, which are almost twice as likely to be made digitally, they only won 31%.

The survey comes just as fintech companies scored a big regulatory win.

On Friday, the Office of the Comptroller of the Currency said start-up and technology companies that act like banks could get a special charter allowing them to more easily operate across state lines. The new rules would give them more credibility with customers but also expose them to tougher consumer protection and anti-money laundering regulations. “Technology-based products and services are the future of banking and the economy,” OCC director Thomas Curry said.

Big banking CEOs have recognized the threat. Last October, JPMorgan Chase launched its own mobile payments service, Chase Pay, for example. “A lot of things they do, we can do; a lot of things they do, we want to do,” CEO Jamie Dimon told a recent conference.

Bain agrees that all is not yet lost for traditional bank CEOs, with the more tech savvy having beefed up their digital strategies early to fight back against disruptors. In the UK, for example, it points out that Santander slimmed down its current-account product suite to just five or six products from nearly 200 to make buying and selling simpler. It also was one of the first traditional banks to develop digital sales channels, allowing customers to refinance a mortgage online.

“By now, the digital disruption in banking should come as no surprise, and most banks clearly understand the importance of digital migration,” said the report’s lead author Gerard du Toit. “The bigger challenge lies in how to organize the transition and instill the necessary changes, both at the frontline and in the back office, to improve how consumers do their banking.”