China and India distinguished themselves by having the highest percentages (55-60 per cent) of Gen Y and tech-savvy customers using financial services from non-traditional firms, according to a report put together by Capgemini and European Financial Management Association.

The World Retail Banking Report 2017 observed that as the governments of both countries continue to prioritise digital initiatives, the segment of tech-savvy individuals will become increasingly important to banks.

“Younger, more tech-savvy customers are the most likely to embrace financial services from non-traditional providers. Nearly half of tech-savvy customers (42.6 per cent) use non-traditional firms, compared to only 12.8 per cent of the non-tech savvy who do,” said the report.

Similarly, 37.2 per cent of Gen Y (generation of people born during the 1980s and early 1990s) customers use non-traditional banks, compared to 22 per cent of those in other age groups.

The report underscored that in emerging economies such as China and India, more than half of Gen Y and tech-savvy customers have relationships with non-traditional firms, the highest percentages globally.

Non-traditional firms employ cutting-edge technologies to provide, among others, loan-related transactions, specifically in terms of real-time loan quotes via mobile and initiating or closing a loan from a digital channel; and mobile payments and e-commerce services.

Across the world, the strength of the fintech movement tends to correlate with positive customer experience in that country, the report said. The top five countries in positive experience (the US, India, the UAE, China, and Netherlands) are also rich in fintech activity.

Non-traditional firms, the report said, also bested incumbent banks in Asia-Pacific, providing positive experiences to 39.5 per cent of customers (versus only 32.6 per cent by banks).

“China led the way, with non-traditional firms beating banks in positive customer experience by 15.8 percentage points. With India, Australia and Singapore also emerging as centres of innovation for tech-driven financial services, the regional trend is expected to continue,” it said.

The report highlighted the fact that in India, with 53 per cent positive customer experience, the government is pushing financial innovation through its recent launch of a smartphone-based money transfer system, and several prominent banks are heavily involved in teaming up with fintechs.

The report said perhaps the biggest risk of ‘open banking’ is that it will allow consumers and merchants to execute direct transactions without going through banks, making it more difficult for banks to have a full view of customer transactions and maintain customer relationships.

It cautioned that as more third parties become involved in providing financial services, customers will have fewer reasons to go to bank apps or websites, posing an obstacle to stronger bank/customer connections.

“For example, in India, Paytm has more than 200 million users who transacted more than one billion times in 2016. Customers bypassed their banks to carry out these transactions, thereby having an impact on the bank/customer relationship as well as resulting in banks not having the data related to the transactions,” the report said.

Ultimately, the report assessed that the future success of banks will require a shift towards a more open banking model. Open banking can uncork the creativity of third-parties, generating unprecedented opportunity for building and distributing innovative, new products, while offering customers transparency and a ubiquitous banking experience.

“Getting there, however, will require careful planning, and compel banks to make strategic choices about how to evolve their business models. With technology firms proving their power to delight customers, banks need to act now to ensure they remain a key part of the equation.” it said.