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The positive noises coming from traditional finance circles are becoming less convincing with each passing week that their stranglehold on the finance world loosens.

Not only are the key players at the likes of Barclays Bank, Virgin Money, TSB, and RBS losing the battle for the hearts, minds, and trust of millennial and generation Z clients, but it would appear they don't even understand the battlefield itself.

According to a report carried out by Pepper in 2019 and covered by Forbes, 18% of key decision-makers at traditional banks believed that having an app qualified a bank as "truly digital."

Not to mention that 1 in 10 believed that offering online statements means a bank is "truly digital."

While those stats should be unsettling to anyone fighting the corner of traditional finance, what was even more concerning is that 42% of those asked did not see cooperation with fintechs as a requirement for traditional banks to remain relevant.

A Real Disconnect

Those numbers may be from a few years ago, but there's little to suggest that views have changed in the traditional finance sphere.

In fact, the only thing that has changed is the breakneck speed at which fintech solutions are appearing, tackling the pain points experienced by consumers and providing real answers to the questions being asked.

The traditional players? Well, they've certainly spent a lot of time installing trendy coffee spots into their branches, and there's a whole bunch of shiny iPads dotted around for bemused customers to avoid.

I enjoy a cup of coffee as much as the next person, but when I find myself in the branch of my local bank, it isn't for a cup of Colombian dark roast. It's to attend to my financial needs as quickly and painlessly as possible.

Michal Kissos Hertzog, CEO of Pepper, commented on the findings of the report, saying "It highlights the size of the disconnect between traditional banks and their customers. Banks are not innovating fast enough, and the value proposition and consumer experience is nowhere it should be. It's not for lack of trying, but the reality is that banks are failing to go fully digital and are falling further behind."

There's much that Hertzog has to say that I agree with, however when she claims, "it's not all bad news - banks still retain consumer trust, which is a position of tremendous strength and decision-makers understand how they need to improve. Only time will tell if they are able to deliver" I find myself disagreeing.

Do Banks Have the Trust of Their Customers?

We've consistently heard advocates of traditional finance claim that for all the advances seen by fintech companies, trust is still on the side of the legacy players.

It may be. For now. 

An Accenture report titled 'Purpose-driven banking: looking beyond COVID-19' claims that "the level of customer trust in the banking sector has remained flat" and "most consumers and small businesses don't trust their banks to be their financial advisor."

While both sides of the divide argue over who has the upper hand in trust from consumers, the real question that should be asked is why anyone should trust their financial future to a traditional bank in 2021?

The Pepper report claims that 82% of respondents believe banks aren't innovating fast enough to meet changing consumer demands for digital services, while 48% think that traditional banks are at least three years behind fintech rivals.

The reasons for this line of thought? 65% believe there is a reluctance to adopt external technology, while 57% lay the blame at the feet of "a culture that is not innovation-focused."

These are the views of key decision-makers at some of the biggest banks in the industry, remember. 

So, I ask once again, why should anyone trust their finances to institutions whose key decision-makers admit are reluctant to adopt new technology and who are not innovation-focused? 

It's Not all Bad News!

While many licensed banks are reminiscent of an old oil tanker trying to navigate a tight waterway, not all are in this position.

EQIBank, a licensed global digital bank, is only too keen to embrace the technology and innovation that many traditional players are seemingly shying away from.

CEO Jason Blick commented, "The truth is, in traditional finance, distinctly separate silos of function have been reinforced by legacy systems developed to meet the needs of centralized institutions. This idea of assigning separate silos to each banking product, such as one for a current account, another for a credit card, and another for a mortgage loan, has been central to every financial crisis, in turn increasing mistrust of banks among the public. Many customers feel that traditional banks have failed to offer a fair and sustainable business model to maintain safe and secure lending strategies."

As is almost always the case, the consumers will determine the winners and losers of this particular debate. The people who use the services will ultimately decide the outcome, and while it could be argued that the traditional players are just about hanging on for the moment, the tide is undoubtedly changing.