2020 U.S. Banking Shopper Survey: Newcomers Raise the Bar for Traditional Banks

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RESEARCH 2020 U.S. Banking Shopper Survey: Newcomers Raise the Bar for Traditional Banks

Table of Contents

Executive Summary 5

Who is Shopping for a Checking Account? 6

What Do People Want? 10

Chime Strikes a Chord 16

Authors and About Novantas 22

Executive Chime has been in business for less than a decade, but it is already outperforming U.S. banks that are more than 100 years old.

The San Francisco-based neobank made its first Summary appearance in the annual Novantas 2020 U.S. It includes consumers who have switched their Banking Shopper Survey and quickly claimed primary checking provider in the past three the top spot for distinctiveness. It also ranked years and those whom are open to switching. highly in several other categories. These people are younger and less affluent than the traditional targets of most financial Varo, another digital newcomer in the Novantas institutions, underscoring the importance of consumer research, also notched a strong showing. seamless and advanced digital capabilities.

Traditional bankers may be tempted to dismiss They are also the banking industry’s future. these new entrants. After all, their customer accounts typically have lower balances than In addition to demographic profiling, the sur- traditional banks. And who knows if they will vey explored differences in consumer financial even exist five years from now? confidence and attitudes toward financial inno- vation. Novantas has identified six attitudinal But the message for traditional banks is clear: clusters that reflect varying levels of comfort these players are raising the stakes in terms of with branchless, app-driven banking. The functionality and distinctiveness. And consum- research also explores their anxieties about ers are willing to try out new non-bank provid- current financial positions. ers for their financial services. This research report is based on a survey con- Many banks have made significant improve- ducted last fall of 118 banks across 42 designat- ments to their digital capabilities, but consum- ed market areas (DMA). In addition to Chime ers aren’t going to wait around for them to catch and Varo, Novantas added 11 small regional up to these newcomers. banks to the pool and also expanded the survey to include respondents from Buffalo, N.Y. The research dives into the demographics and characteristics of people who are shopping for The 9,185 respondents include: checking accounts, as well as their preferences. “Recent Purchasers” — have switched primary banks in the past three years

“Prospective Switchers” — are either actively shopping or open to switching 5 Who is Shopping for a Checking Account

FINDINGS:

Nearly two-thirds are between 18-37 years old.

More than 75% make online purchases at least once a week. Nearly 90% used non-bank payment providers last year. ? More than half don’t have children.

6 NEARLY HALF OF RECENT PURCHASERS ARE MILLENNIALS, 17% ARE GEN Z AND MORE THAN HALF EARN LESS THAN $50,000 ANNUALLY

Age Income

17% Less than $25K 23%

Gen Z $25K to <$50K 32%

47% $50K to <$75K 20% Millennials $75 to <$100K 12%

23% ? $100K to <$150K 9% Gen X

$150 to <$250K 3%

13% $250K or more 1% Boomers

Base: Recent Purchasers (N=7,955) 7 These consumers are embracing digital tools to manage their money, using more personal-finance apps and mobile payment providers than ever before.

14% 18% 24% 27%

20% 2018 2019 19%

39% 39%

I manage my financial needs using apps and other digital products from institutions other than my primary bank (e.g., Mint, Credit Karma, Digit, Acorns)

I manage my financial needs using apps and other digital products from my primary bank I manage my financial needs using apps and other digital products from my primary bank and other institutions equally I don't use apps or other digital products to manage my financial needs

NON-BANK PAYMENT PROVIDERS USED IN THE PAST 30 DAYS

67% 2018 2019 61%

23% 22% 22% 20% 21% 16% 17% 15% 15% 12% 14% 13% 10% 13% 7% 6% 3% 1% 1% 1%

PayPal Apple Pay Amazon Pay Venmo Google Pay Cash App Zelle Chase Dwolla TransferWise I haven’t (by Square) QuickPay used any of these in the past 30 days

Base: 2018 (N=8582), 2019 (N=9185) 8 Novantas identified six consumer groups that are distinguished by their financial comfort and sentiment toward non-traditional banking. These people have sharp contrasts in their comfort with branches and app-driven banking. They also have varying degrees of anxiety about their financial situations.

While banks can’t be all things to all people, they can identify and acquire the groups that are the best fit – and then focus on delivering the products and services that meet their needs.

Struggling Comfortable Confident Struggling Uncomfortable Confident Innovator Innovator Innovator Traditionalist Traditionalist Traditionalist

15% 27% 11% 13% 24% 9% Insecure about Worried about Highly Financially Financially Feel very much personal saving for big comfortable insecure, insecure about in control over finances. goals, but feel with the worried unexpected their financial Unsure if they comfortable unexpected about current expenses, but future. Not will be able to and in control and aren't expenses and generally have worried about pay the bills. of day-to-day worried about not prepared enough money retirement or They believe finances. They saving for big for unexpected to pay bills. saving for big that banks use Venmo or goals. They expenses. Most wouldn't goals or day-to- don't have their Zelle more than have a good They prefer want to use day expenses. best interest cash and don’t relationship traditional a provider Prefer banking at heart and mind banking with banks, but methods of without physical with traditional are open to a with an online- are willing to banking and branches. banks and feel new banking only provider. use online-only value branches. very supported product from a providers. by their tech company. provider.

9 What Do People Want

More than half of shoppers say they would prefer to open their next checking account digitally.? Does your bank have that capability?

PREFERRED WAY TO OPEN A NEW CHECKING ACCOUNT

2017 2018 2019

60% 55% 50%

35% 31% 32% 27% 30% 27% 29% 20% 13% 5% 5% 5% 4% 4% 4% 2% 3% 3%

In a bank branch On a desktop On a smartphone On a tablet On the phone At work or at home, NET Digital or laptop with a representative in person with a representative

Base: Prospective Switchers 2017 (N=4,202), 2018 (N=1,833), 2019 (N=2438) 10 When it comes to switching banks, fees and online/mobile capabilities are important factors. Branches play less of a role in the decision.

REASONS FOR SWITCHING TO A NEW BANK

2018 2019

28% 24% 27% 26% 24% 21% 21% 19% 14% 15% 13% 14% 10% 8% 8% 8% 8% 7% 7% 8%

Monthly fees Bad service or I moved, The branches Another bank The ATMs I didn't like The branch that Rates were Other or nuisance a particularly married or had weren’t made me a weren’t the bank’s I was using too low fees bad experience another life event convenient good enough convenient online or mobile closed offer to switch banking

Base: Recent Switchers 2018 (N=5199), 2019 (N=5338) Q38: Which of the following reasons best describe why you no longer use [bank] for your primary checking account? 11 It’s no surprise that branches are less important than other factors when people choose a checking account.

REASONS FOR CHOOSING PRIMARY BANK (% RANKED IN TOP 3)

2017 2018 2019 46% 44% 43% 42% 42% 43% 41% 40% 40% 39% 38% 37% 34% 34% 34% 33% 26% 27% 28% 26% 28% 22% 20% 20% 19% 16% 15%

Convenient Their products Simple or low fees Friendly and Convenient Looks out for Leading Good interest rates Convenient branch and services helpful ATM its customers online/mobile branch locations ﬁt my needs locations banking hours

FINDINGS: Switchers are now increasingly motivated to leave a bank due to fees and online/mobile capabilities.

Base: Recent Purchasers 2017 (N=6,735), 2018 (N=7,612), 2019 (N=7,955) Note: *Indicates a statistically significant difference from the previous year at 95% confidence interval; Q: Please rank UP TO 3 most important reasons why you chose [PRIMARY BANK] to be your primary checking account provider? [1 is the most important, 2 is the second most important, and 3 is the third most important] 12 Digital marketing, on the other hand, is becoming increasingly important. Banks need to up their game if they want to acquire valuable customers.

DRIVERS OF CUSTOMER ACQUISITION

Metric Definition Branch share Marketing and Branding is a composite score of a bank’s Leading digital brand distinctiveness*, direct +13 mail (volume and incentive), and ATM share weighted marketing share of voice Marketing & Leading Digital measures a bank’s branding perceived online and mobile +3 capabilities +1 Other factors ATM Share is a bank’s share of a market’s total off-site ATM sites Branch Share is a bank’s share of -15 a market’s branch count

2015 2019

DRIVERS OF CONVENIENCE

2014 2018 2019 50%

38% 30% 32% 28% 25% 24% 21% 19% 20% 16% 18% 16% 11% 11% 10% 10% 10% 8% 4% 6% 6% 6% 1%

Branch near me Useful online or Can use other Lots of branches ATM near me Extended branch Easy to reach by Branch-centric mobile banking banks/ATMs and ATMs hours phone factors without a fee

*Brand – composed of various attributes (e.g, “friendly and helpful”, “helps you plan”) from the Novantas Shopper Survey Source: Novantas Analysis of Primary Checking Purchasers; Novantas 2019/2015 U.S. Shopper Survey, Novantas Branchscape, MasterCard ATM Data, Kantar Media, Comperemedia, and Novantas Customer Knowledge | US Shopper Survey all markets nationwide: 2014 (N=6,116), 2018 (N=8,582), 2019 (N=9,185) Q23. What would do the most to make a bank a convenient place for your checking account? 13 Banks are making efforts to enter this new age by launching direct-banking units and adding digital capabilities, but more and more consumers are intrigued by the notion of technology firms entering the banking industry.

And, for the first time, our survey dug into the reasons why.

of Prospective Switchers say they would be likely to open a checking account if offered by a tech company. That’s up 60% 16 points from 2017!

CONSUMERS ARE INCREASINGLY LIKELY TO CONSIDER TECH COMPANIES FOR BANKING

If a technology 2017 2018 2019 company like Apple, Google,

Facebook 44 or Amazon 57 were to offer 60 online banking capabilities, how 25 20 likely would you be 19 to open a personal

checking account 30 with a company 23 like one of these 20 ? 14 WHEN BROKEN OUT BY AGE, MILLENNIALS AND GEN Z SELECTED “VERY/ SOMEWHAT LIKELY” TO CONSIDER A TECH COMPANY FOR BANKING

67% 60% Millennials Gen Z (23-31) (18-22)

Respondents cite better technology, existing relationship and ease of access as main reasons for considering technology companies.

REASONS FOR OPENING A CHECKING ACCOUNT WITH A TECHNOLOGY COMPANY

46 45 38 35 33

21 19

Base: Prospective Switchers who are somewhat/very likely to open an account with a technology company (N=3357) Q44: Which of the following describe why you would consider opening a personal checking account with a technology company like Apple, Google, Facebook or Amazon? 15 Chime Strikes a Chord

Respondents gave neobanks high marks for distinctiveness, rewarding them with a purchase rate that has nearly doubled in a year.

These banks are now serious competitors to traditional financial institutions. Characterized by an ele- vated customer experience, low (or no) fees and overdraft protections, Chime and other neobanks are making quick gains in overall checking-account acquisition.

Having slowly captured acquisition share over the last four years, neobanks have now hit an inflection point in purchase.

PRIMARY BANK (CHECKING) PURCHASE RATE BY BANK TYPE AND YEAR

National Regional Community/Credit Union Direct Neobank

38 35 33 33 32 31 27 27

5 4 4 4 4 3 2 3 2 3

2016 2017 2018 2019

Note: Purchase rate shown is for aggregate segment (e.g., National = all purchasers of either Chase, B of A, or Wells Fargo) at a national level 16 As consumer preferences shift, neobanks are now outperforming direct banks and regional banks with higher purchase conversion rate.

2019 BENCHMARK

P C 86 51 35 20 15

53 40 13 9 4

22 14 5 8 3

FINDINGS: Neobanks are particularly popular in southeast cities (e.g., Memphis, Atlanta, Charlotte)

Notes: Direct Banks include USAA, Ally, Capital One, Charles Schwab, Discover; Neobanks include Chime, Varo | *Purchase conversion is the purchase rate over consideration rate 17 Not surprisingly, neobank customers are young. Nearly two- thirds of the customers who have recently opened a primary account with a neobank are millennials.

NEOBANK PURCHASER BY AGE AND INCOME

Age Income

8 Less than $25K 31

Gen Z $25K to <$50K 40

62 $50K to <$75K 17 Millennials

$75 to <$100K 8

25 $100K to <$150K 3 Gen X

$150 to <$250K 1

6 $250K or more 0 Boomers

Base: Recent Purchasers (N=7,955) Neobank Purchaser (N=773) 18 DISTINCTIVENESS ATTRIBUTE ASSOCIATION

Min Max National Bank avg. Super Regional Bank avg. Regional Bank avg. Direct bank avg. Neobank avg.

40% 35% 30% 25% 20% 15% 10% 5% 0% Serves all Looks out for Is a good value Friendly and helpful Makes it easy to Helps you plan banking needs its customers manage your ﬁnances for your future

Min Max National Bank averageSuper Regional Bank averagRee gional Bank averageDirect Bank averageNeobank average More Important Less Important

Neobank Chime lands in the second tier of primary relationships behind the national banks.

2019 US SHOPPER | PURCHASE RATE

National Bank Super Regional Bank Direct bank Neobank

15.8 15.6 13.0 10.1 8.9 8.3 7.5 7.1 6.9 6.7 6.4 6.3 5.5 5.2 4.6 4.1 3.7 3.4 3.2 2.8 2.4 1.3 1.3 1.3 1.3 1.0 0.4 0.4 0.3

Base: recent purchasers aware of each bank Shows aggregate score for banks included in at least 3 markets Base: Recent Purchasers (N=7,955) Each bank represents the purchase rate for the markets in which they were included; 42 DMAs tested 19 While direct banks generally struggle to earn a strong perception of convenience, Chime and Varo show competitive positioning.

2019 PERCEIVED CONVENIENCE BY INDIVIDUAL BANK (AGGREGATE OF RESPECTIVE MARKETS)

National Bank Super Regional Bank Regional Bank Direct bank Neobank 250

200

150

100

Neobank customers choose them for minimal fees, products and leading online banking.

REASONS FOR CHOOSING PRIMARY BANK (% RANKED IN TOP 3)

Recent Purchaser Neobank Purchaser

64% 64% 55%

42% 43% 38% 39% 34% 33% 29% 27% 28% 28% 20% 14% 15% 6% 5%

Benchmark is the average of all banks’ average perceived convenience in markets where they are present, bank scores are each bank’s average perceived convenience in markets where it is present as a percentage of the benchmark Base: Recent Purchasers (N=7,955), Neobank Purchaser (N=773) 20 USAA continues to maintain a highly distinct positioning in consumers’ minds, falling only slightly behind neobank Chime.

2019 DISTINCTIVENESS BY INDIVIDUAL BANK (AGGREGATE OF RESPECTIVE MARKETS)

National Bank Super Regional Bank Regional Bank Direct bank Neobank 200

150

100

Chime’s appeal is deepest among the Financially-Insecure Innovators, but appealing to more confident segments as well.

SEGMENTATION ANALYSIS | AVERAGE # OF STANDARD DEVIATIONS FROM MEAN BY CATEGORY WITH NEOBANK PENETRATION

Innovative 1.0 Confident Innovator 11% 23% Struggling Innovator

0.5 7% Comfortable Innovator

0.0

-0.5 4% Uncomfortable Traditionalist 2% 4% Struggling Traditionalist Traditional Confident Traditionalist -1.0 -1.1 -1.0 -0.9 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1

Financially Insecure Financially Secure

Bank scores are each bank’s aggregate distinctiveness in markets where it is present as a percentage of the benchmark Note: Axis scores reflect average number of standard deviations from mean across all questions within the Tech Affinity category and Financial Comfort category, Penetration of neobanks represented by size of bubble 21 Authors and About Novantas

ANNA JAMES Anna is a Research Manager in the Customer Knowledge prac- tice at Novantas. She leads the design, project management and analysis of primary research initiatives spanning retail, business and commercial banking. [email protected]

ROBIN SIDEL Robin is a director at Novantas, overseeing the firm’s editorial content that includes the Novantas Review, research and white papers. She is also director of the Center for the Future of Bank- ing at Novantas. She is a former award-winning journalist who wrote about the banking industry for the Wall Street Journal. [email protected]

22 Novantas is the industry leader in analytic advisory services and technology solutions for financial institutions globally. We create superior value for clients by providing information, analyses, and automated solutions that improve revenue generation, growth, credit quality and profitability. Our experienced team understands banking industry evolution, advances global thinking to meet these challenges, and brings the expertise and tools needed for our clients to excel.

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