Banks are struggling to stay relevant to a shifting customer base that is driven by technology and need to rethink their business models and value propositions to stay relevant to customers, according to a study by Anthemis Group and Claro Partners.

The report was developed as part of the ‘Always in Beta’ project, a research and business innovation initiative formed by Claro and Anthemis in collaboration with ING, Bank of Ireland, Standard Bank, and three other top BIS 50 financial institutions. The new report deconstructs much of the conversation around youth and millennials, urging financial institutions to focus on a new demographic – the digital native – that is shaped less by age and geography and more by technology and structural trends. The report reveals that the digital native customer – who could be a 25-year-old graduate student or a 50-year-old entrepreneur – has fundamentally different expectations than the banking customers of the past and is becoming increasingly dissatisfied with legacy financial services providers.

Millennials and young people might have been the early adopters of the digital native lifestyle, but the Always in Beta report found that the traits of that lifestyle now span beyond age and geography. Digital native customers of all ages lack three qualities that are central to most traditional financial services products: predictable life paths, financial stability, and long term consumer loyalty.

“Claro and Anthemis are combining our complementary skill sets to help the financial services industry respond to a rapidly changing world,” said Samantha Ghiotti, a director at Anthemis and a principal architect of the project, adding, “shifting consumer needs, the rise of financial technology, and broader structural and economic changes make this a perfect storm for financial institutions, and that’s where Always in Beta comes in.”

Aldo de Jong, co-founder of Claro and the other principal architect of the project, said, “while many financial institutions are starting to focus on youth and millennials, the needs of the entire customer base are shifting, and banks need to develop new value propositions that align with and support the lifestyles of digital natives.”

The report reveals several points of misalignment between banks and digital native customers, and develops a new paradigm for developing business models that meet their needs:

• While banks expect their institutional authority to equate with trust, digital natives develop trust based on shared interest and their network.
• While banks emphasize products that help customers plan their future, digital natives want offers that help prepare them for an uncertain future.
• While banks encourage delegation of financial decision-making, digital natives want to be empowered to make their own financial decisions.
• While banks provide customers with raw information, digital natives want information overlaid with meaning and context.

De Jong noted, “who is able to take the greatest advantage of the opportunity to serve digital native customers – financial institutions, startups, or large technology companies like Google or Apple – remains to be seen. Always in Beta was designed with this opportunity in mind, and we see it as an exploration that is just getting started.”

“Banks are seeing their market share declining at the hands of small digital financial services startups that are made by and for digital natives,” said Nadeem Shaikh, founder and CEO of Anthemis. “The financial services industry has misunderstood the size and nature of the impact technology has had on customers.” He added, “Always in Beta is the first project that combines in-depth customer research with business model development – combining analysis with action to help build the financial services products of the future.”

“Always in Beta has been an excellent programme to support our innovation strategy,” said Dave Tighe, Head of Innovation, Bank of Ireland. “Not only did it provide us with a fresh way of looking at a key segment for the bank but it also opened up a co-creation model with other banks that was otherwise unavailable to us. This innovative programme was unique in its approach and delivered strongly on the objectives set out.”

Claro and Anthemis launched the Always in Beta project in early 2015 to help six international financial institutions understand and respond to their changing customer base and the emerging financial technology landscape. The project took the team to six cities – London, Singapore, Dublin, Cape Town, Istanbul, and Mexico City – to conduct ethnographic field research and consult with experts. Executives from Anthemis, Claro, and the six financial institutions gathered in multiple day-long sessions to share findings and begin developing business models that were responsive to those findings.