The news: A survey from Deloitte has found that financial institutions are coming under increasing pressure to address and improve social equity issues. As a result, the rapid proliferation of affinity banks—challenger banks founded by and for the underrepresented—is putting pressure on incumbent banks to change how they operate.
The survey was conducted in January 2022 with over 2,000 respondents across the US.
Inclusivity is good for business: Consumers increasingly expect brands they associate with—including their banks—to behave in a socially responsible way. This is especially true of the up-and-coming Gen Zers, who patronize financial institutions and invest in companies that mirror their goals for social justice, sustainability, and other causes they deem important. Deloitte’s findings affirm that consumers’ interest in social equity extends to their financial lives.
Personal values influence choices: As shared values become the influencing factor in selecting products and services, Deloitte found, negative interactions become more likely to drive consumers to seek services that better reflect their identity and affinities. As a result, financial institutions that fail to address and improve equity issues will risk losing market share and brand strength.
By the numbers: Each of the various affinity groups Deloitte surveyed identified a different need.
The bigger picture: Digital access, open banking, and neobanks have changed the way people handle their money by expanding their choices. Instead of viewing banks as just a place to store money, transact, and access credit, consumers also want a bank to complement their personality, beliefs, and values. Deloitte identified more than 30 affinity banks in the market specifically designed to serve underrepresented groups who share common values and identity drivers.
Deloitte concludes that as consumers continue to seek out products and services that better reflect their identity and affinities, incumbent banks risk losing up to 10% of market share to the flourishing affinity market if they don't take proactive steps to seriously serve underrepresented groups.
The big takeaway: Both incumbent banks and digital challengers must be thoughtful about their next moves. Incumbent banks will need to lean on personalization and inclusion, but must do so authentically to be successful.
Since challenger banks can bring in specialization right from the starting gate, they need to direct their efforts toward customer retention.