Banks are right to fear tech giants (AAPL, AMZN, GOOGL, FB)

While the companies themselves haven't yet made serious forays into banking, new data on customers' willingness to bank with them suggests the fears are well founded. Nearly a third (28%) of customers in the UK, Germany, Belgium, and the Netherlands said they would consider using banking services provided by companies like Amazon, Google, Apple, and Facebook, a new study by Mulesoft found.

Customers believe tech giants' banking services would bring greater convenience. Among those who would bank with a tech company, 55% say they would do so for the simplicity and convenience they believe these companies' services would offer; the next-most popular reason is more personalized service, at 33%. Customers likely think tech giants can deliver these two elements based on the streamlined portals their core businesses boast, and their experience in tailoring recommendations using analysis of their customer data.

The results indicate that incumbents are thinking about innovation in the wrong way. At the moment, banks looking to revamp their front-ends are doing so by introducing numerous features and apps, as opposed to streamlining the features they already have. The threat from tech giants may be hypothetical for now, but fresh players like neobanks have already started building their propositions on convenience and personalization to steal incumbents' market share. This, as well as consumers' apparent willingness to try other new banking providers as they come along, should urge incumbents to make customer service the linchpin of their business models. A good, and simple, place to start would be simply making it easier to open a bank account, a process that often still requires customers to visit a branch and fill out paperwork.

Weighed down by a sluggish global economy, turbulent capital markets, and heavier regulation after the 2008 financial crisis, many big banks have scrimped on innovation.

In doing so, they've failed to keep up with customers' embrace of and demand for all things digital and mobile. That's opened the door to a new breed of banks dedicated to delivering an optimal digital customer experience: digital-only "challenger banks," or "neobanks."

These players' agile, modular, wholly digital systems let them adapt quickly to changing consumer demands and expectations, threatening incumbents. However, the big banks still have the edge in consumer trust. This gives legacy firms a window of opportunity to launch digital subsidiaries of their own to fend off the upstarts.

Maria Terekhova, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on digital-only challenger banks that looks at the features that make neobanks a distinct new competitor, the range of models they're adopting, and the regions in which neobanks are particularly flourishing. We also discuss the challenges neobanks still face, and the opportunity these obstacles present for incumbents to get ahead in the transition to digital banking.

Here are some of the key takeaways:

They are dedicated to improving on incumbent retail banks’ weakest point — customer experience.

In full, the report:

Interested in getting the full report? Here are two ways to access it:

Banks are right to fear tech giants (AAPL, AMZN, GOOGL, FB)

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