Canadian Banking Consumers - Digital Challenges and Opportunities (Dec 2015)

DECEMBER 2015 Julie Conroy

+1.617.398.5045

jconroy@https://www.360docs.net/doc/539085395.html,

Canadian Banking Consumers: Digital Challenges and Opportunities Licensed to KPMG - Not for External Distribution

TABLE OF CONTENTS

INTRODUCTION (3)

METHODOLOGY (3)

BANK WITH A NONBANK? (5)

THE BRIGHT SIDE: BANKS STILL HAVE THE EDGE (8)

DATA SECURITY AND PRIVACY PERCEPTIONS (9)

DATA BREACHES (11)

Licensed to KPMG - Not for External Distribution CONCLUSION (17)

RELATED AITE GROUP RESEARCH (18)

ABOUT AITE GROUP (19)

CONTACT (19)

LIST OF FIGURES

FIGURE 1: LIKELIHOOD OF CONSIDERING ALTERNATIVE PROVIDERS (5)

FIGURE 2: INTEREST IN ALTERNATIVE PROVIDERS BY AGE SEGMENT (6)

FIGURE 3: REASONS CONSUMERS WOULD CONSIDER A PROVIDER FOR A FINANCIAL PRODUCT (7)

FIGURE 4: PERCEPTION OF BANKS VS. NONBANK TECH FIRMS (8)

FIGURE 5: PERSONAL DATA PERCEPTIONS (9)

FIGURE 6: CONSUMER SATISFACTION (10)

FIGURE 7: CONSUMER SATISFACTION AND PERSONAL DATA PERCEPTIONS (11)

FIGURE 8: DATA BREACHES (12)

FIGURE 9: INTEREST IN A BANK-OFFERED DATA PRIVACY SERVICE (13)

FIGURE 10: INTEREST IN A BANK-OFFERED DATA PRIVACY SERVICE BY SATISFACTION LEVEL (14)

FIGURE 11: INTEREST IN A DATA PRIVACY SERVICE BY AGE (14)

FIGURE 12: ACCESS TO PERSONAL DATA (15)

FIGURE 13: ACCESS TO PERSONAL DATA BY SATISFACTION LEVEL (15)

LIST OF TABLES

TABLE A: SURVEY DEMOGRAPHICS (4)

TABLE B: PERSONAL DATA PERCEPTIONS BY AGE (10)

TABLE C: ACTIONS TAKEN AS A RESULT OF DATA BREACHES (12)

TABLE D: BLAME FOR DATA BREACHES (13)

INTRODUCTION

The Internet age has seen the way in which people interact and transact advance by leaps and

bounds. From digital banking and shopping to social media and person-to-person payments, the

Internet has fostered new levels of convenience and utility, transforming Canadians’ day-to-day

lives. It has also engendered new challenges for banks. Disintermediation is one threat, with the

emergence of many consumer-focused tech firms that have aspirations to expand their

relationships (and revenue streams). Data security concerns are another, with cybercrime and

Licensed to KPMG - Not for External Distribution data breaches advancing at a startling pace.

What impact has the digital age had on Canadians’ relationships with their banks? This Impact

Note, one in a series of reports on Canadian consumers,1 addresses their attitudes regarding

data security and data privacy as well as their willingness to bank with nonbanks. It examines the

risks associated with mismanaging customer data and banks’ opportunities to capitalize on their

strengths to deepen customer relationships in spite of the digital distractions.

METHODOLOGY

In January 2015, Aite Group surveyed 1,246 Canadian online banking consumers in a research

effort sponsored by Capco. The sample is representative of the overall Canadian population by

gender, age, income, and province of residence (Table A). The data have a margin of error of 3

points at the 95% level of confidence.

1.See Aite Group’s report Canadian Banking Consumers: Evolving Channel Preferences, December 2015.

Table A: Survey Demographics

Variables Segments Percentage

Gender Male 45%

Female 55%

Income (In CA$) Less than $15,000 5%

$15,000 to $29,999 13%

$30,000 to $44,999 18%

$45,000 to $69,999 27%

$70,000 to $99,999 20%

$100,000 to $250,000 16%

More than $250,000 1%

Age 18 to 24 years old 5%

25 to 34 years old 20%

35 to 44 years old 20%

45 to 54 years old 21%

55 to 64 years old 18%

65 to 74 years old 14%

75 years or older 2% Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015 Licensed to KPMG - Not for External Distribution

BANK WITH A NONBANK?

PayPal, Google, Apple: These firms come from very different starting points, and their reasons for entering financial services are equally diverse. Google seeks to enter payments to convert its pay-per-click business to a more lucrative pay-for-performance revenue stream. Apple wants to sell more devices. PayPal looks to become an alternative to traditional banks. The question is, however, how receptive are consumers? Are they willing to trust these brands with their money? Aite Group’s survey gauged Canadian consumers’ interest in trusting prominent consumer brands with their financial needs. With the exception of PayPal, a firm that already competes with banks for consumers’ payments business, less than 20% of Canadians would consider using a financial product such as a checking account or a credit card offered by a nonbank (Figure 1). Figure 1: Likelihood of Considering Alternative Providers

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Millennial Canadians, however, are a different breed of consumer. These digital natives are between the ages of 18 and 34 and place a higher importance on mobile and online

transactions. They tend to have less loyalty to traditional banking brands, and as a result they show a higher propensity to consider an alternative provider to meet their financial needs than older consumers do, as shown in Figure 2:

? Twenty-seven percent of millennial Canadians indicate that they would consider

Amazon as a financial provider, while just 9% of consumers over the age of 55 say

the same.

? Twenty-two percent of millennials would consider Google, while only 6% of those

over 55 would do so.

24%12%10%9%9%8%6%6%5%

11%

4%4%4%4%PayPal Amazon Google Apple My mobile phone provider My cable TV

provider

Facebook Starbucks Square

Q. How likely would you be to consider the following providers for

financial products and services (like a checking account or credit card)

the next time you need one, assuming the provider offered them?

(N=1,246)

Very likely

Possibly

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? Three times as many millennials as consumers age 55 and over would consider

Facebook or their mobile phone providers for financial services. Figure 2: Interest in Alternative Providers by Age Segment

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Interestingly, the propensity to bank with PayPal, arguably a more established financial brand, is the same across age groups, with over one-third of Canadians in each age group indicating that they would very likely or possibly consider a financial product from PayPal.

Why are young Canadian consumers increasingly considering these alternative providers? Aite Group examined consumers’ reasons for choosing PayPal, Amazon, Google, and Apple, the providers with the highest levels of financial product interest among 18- to 34-year-olds. For both the 18- to 34-year-old and the 34- to 54-year-old age groups, the most frequently cited reason for selecting an alternative provider is consumer trust. Better price is the second most frequently cited reason for selection among 18- to 34-year-olds, particularly when considering Amazon and Google. Among consumers between 35 and 54 years old, better online and mobile capabilities is the second most important reason (Figure 3).

34%

27%

22%

20%18%

16%15%

14%

38%

18%15%14%15%12%9%

9%33%9%

6%9%

3%3%4%

PayPal Amazon Google Apple Mobile phone provider Cable TV provider Starbucks Square Facebook Canadians Who Would Likely Consider a Financial

Product (Such as a Checking Account or Credit Card)

From Alternative Providers

18 to 34 (n=309)

35 to 54 (n=505)

55 and older (n=432)

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Figure 3: Reasons Consumers Would Consider a Provider for a Financial Product

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

45%

46%

40%

43%

27%40%

26%

39%

32%27%

24%41%

22%

30%

26%

30%22%22%

15%

20%

59%

51%50%46%

27%

20%

33%37%

33%35%25%

20%

16%

15%18%21%

15%15%

24%

14%PayPal Amazon Apple Google PayPal Amazon Apple Google PayPal Amazon Apple Google PayPal Amazon Apple Google PayPal Amazon Apple Google H i g

h d e g r

e o

f t

u s

t B e t t e r

p r

i c e s

o r

o w

e r

f e e s

B e t

t e r

o n l i n e a n d m

o b i l

c a

p a

l i t

i e s

B e t t e r

p r

o d u c

p e r

f o r

m a n c e

B e

t t e r

u s t o m

e r

e x

p e r

e n c

e Selection Criteria for a Financial Services Product or Service

(Among 18-to 54-year-olds)

18 to 34

35 to 54

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THE BRIGHT SIDE: BANKS STILL HAVE THE EDGE

Consumer-focused technology firms (Google, Facebook, and Amazon) have been highly focused on executing cross-sell strategies while making the user experience intuitive and engaging. One might expect individuals to rate these firms superior to banks with respect to the relevance of their offers and the quality of the user experience. Aite Group’s survey shows that this is not the case, however. More of the surveyed Canadians believe that banks and credit card providers do an excellent job with user experience and offer relevance than believe that the online and consumer goods firms do so (Figure 4). Figure 4: Perception of Banks vs. Nonbank Tech Firms

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

44%35%36%23%19%17%16%10%8%6%

26%

25%

20%

15%

13%13%

10%

5%Bank Credit card provider PayPal Amazon Mobile phone provider Google Apple Starbucks Facebook Square Q. Based on your general experiences with the following providers,

please tell us how good a job you think these companies

would do in the following areas.

(Percentage indicating firm would do an excellent job; N=1,246)

Overall user experience

Relevance of offers

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DATA SECURITY AND PRIVACY PERCEPTIONS Data privacy and security are a global concern, and Canada is no exception. Six percent of surveyed Canadian businesses said that they had experienced a data breach in 2013; one-

quarter of these involved theft of or unauthorized access to client or proprietary information.2 This statistic likely understates the true extent of the issue, since Canada did not have a mandatory data-breach-reporting law in place until June 2015.

In spite of the escalating threat landscape, the majority of Canadians believe that banks are protecting consumers’ personal data. More than four in 10 rate their primary bank as doing an excellent job protecting personal data, and one-third say their bank does a good job. Just 3% of consumers say their bank does a poor job protecting personal data. Canadians weren’t as

generous regarding their banks’ ability to efficiently access customer data in interactions or to use personal data appropriately, but very few consumers say their banks do a poor job in these areas (Figure 5). Figure 5: Personal Data Perceptions

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Differences in perceptions regarding data privacy and security emerge when segmenting

consumers by age. Among younger consumers (between 18 and 34 years old), one in five rate their primary bank as only doing a poor to average job of protecting personal data. In addition, about one in four of these younger consumers say their bank does a poor to average job of

accessing personal data in interactions and of using personal data in appropriate ways (Table B).

2. Statistics Canada, accessed November 30, 2015, http://www5.statcan.gc.ca/cansim/pick-

choisir?lang=eng&p2=33&id=3580235.

42%34%32%34%36%34%13%15%15%3%3%

8%12%16%

Protect my personal data Efficiently access data about me in interactions Use my personal

data in appropriate

ways Q. How well does your primary bank do the following?

(N=1,246)

No opinion/no

answer

Poor

Average

Good

Excellent

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Table B: Personal Data Perceptions by Age Task Performance 18 to 34 (n=309) 35 to 54 (n=512) 55+ (n=441)

Protects my personal data Good to excellent 71% 75% 81% Poor to average 20% 17% 12%

No opinion/no answer 8% 8% 8%

Efficiently accesses data about me in interactions Good to excellent 64% 70% 74% Poor to average 25% 19% 12% No opinion/no answer 11% 12% 14% Uses my personal data in appropriate ways Good to excellent 60% 67% 70% Poor to average 23% 19% 12% No opinion/no answer 17% 14% 18% Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Aite Group found a strong correlation between levels of customer satisfaction and consumers’ ratings of their banks’ ability to protect and use personal data. Overall, a little more than half of Canadians said that they are very satisfied with their primary bank. Another one-third are somewhat satisfied, leaving 5% who are dissatisfied and 10% who are neither satisfied nor dissatisfied (Figure 6).

Figure 6: Consumer Satisfaction

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Very satisfied

53%

Somewhat

satisfied

33%Neither satisfied nor dissatisfied 10%

Dissatisfied

Q. How would you rate your level of satisfaction with your primary bank?

(N=1,246)

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A significantly larger percentage of consumers who are very satisfied with their bank rate their banks as doing an excellent job along the three dimensions of personal data protection and use, compared to those who are not satisfied with their bank. Among consumers who are very satisfied with their bank, six in 10 say their bank does an excellent job of protecting their

personal data. Among other consumers, however, that percentage drops significantly—to 25% among consumers who are somewhat satisfied, to 12% of those who are neither satisfied nor dissatisfied, and to 18% of those who are dissatisfied. This pattern is consistent with the other two dimensions of personal data use (Figure 7). Figure 7: Consumer Satisfaction and Personal Data Perceptions

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

DATA BREACHES

Canadians are a bit more shielded from the impact of data breaches than are their U.S.

neighbors. This is thanks in part to Canada’s earlier migration to chip cards, which are much more difficult for criminals to monetize after a data breach. Given that Canada did not have mandatory breach-reporting laws until mid-2015, awareness of data breaches likely lags the actual impact. As a result, just 9% of consumers believe that they have been personally affected by a data compromise, although younger consumers’ perception of the impact is higher than that of older generations (Figure 8).

61%

25%12%18%

50%19%10%8%48%

17%9%8%

Very satisfied (n=657)Somewhat satisfied (n=409)Neither satisfied nor dissatisfied (n=119)

Dissatisfied

(n=61)

Q. How well does your primary bank do the following?

(Percentage responding "excellent,"

by level of satisfaction with primary bank)

Protect my personal data Efficiently access data about me in interactions Use my

personal data in

appropriate ways Licensed to KPMG - Not for External Distribution

Figure 8: Data Breaches

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Consumers impacted by breaches have taken a variety of actions in response. Nearly four in 10 consumers closed out a credit card, and about one in five decreased their use of credit cards. Three-quarters of consumers impacted by a breach have taken some action in response (Table

C). These results are quite consistent with prior Aite Group research—even if the breach is out of a bank’s control, the perception of insecurity has a direct impact on many consumers’ behavior. Table C: Actions Taken as a Result of Data Breaches

Q. Which of the following actions have you taken as a result of the recent data breaches?

Impacted by a data breach (n=110) Not impacted by a data breach (n=1,158) Closed out a credit card 38% 3%

I've used my credit card(s) less than I have in the past 19% 5%

I've changed my data privacy settings with firms I do business with

19% 6%

I've used my debit card(s) less than I have in the past 15% 4%

I've stopped using or decreased the online use of my debit or credit card(s)

13% 4%

Closed out a checking account 5% 1%

None of the above 25% 83%

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

12%

8%7%9%

18 to 34 (n=309)35 to 54 (n=512)55+ (n=441)Total (N=1,246)

Q. Have you been personally impacted by any data breach in which credit

card information was illegally obtained from retailers/merchants in the

past year?

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Being impacted by a breach appears to influence consumers’ perceptions of who’s to blame for the breaches. Among consumers who have not been impacted, 42% don’t know who is to blame. Among those who have been impacted, three-quarters have an opinion. Twenty-six percent of consumers believe the merchant is to blame, 14% believe the bank is to blame, and 28% believe banks and merchants share the blame (Table D).

Table D: Blame for Data Breaches Q. Who is predominantly to blame for the recent data breaches, banks or retailers/merchants?

Impacted by a data breach (n=110) Not impacted by a breach (n=1,158) The blame for data breaches is equally divided 28% 31%

Retailers/merchants are predominantly to blame 26% 16%

Financial institutions are predominantly to blame 14% 4%

Neither are to blame for data breaches 8% 7%

I don't know who to blame for data breaches 24% 42%

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Although few consumers have been personally impacted by a data breach, the importance of protecting their personal data is not lost on them. Half of Canadians would be interested in a bank-offered service that stored and managed their personal information and enabled them to tell their bank who their data could be shared with. A handful indicated a willingness to pay for the service (Figure 9).

Figure 9: Interest in a Bank-Offered Data Privacy Service

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Very interested

and might pay for

it, depending on

how much it cost

Interested, but

only if it were free

45%

Not interested—I don't trust any bank with my personal information 51%

Q. How interested would you be in a bank-offered service that stored and

managed your personal information and enabled you to tell the bank(s)

who your data could be shared with?

(N=1,246)

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Again, satisfaction levels provide insight into interest for this type of service. Fifty-four percent of the customers who are very satisfied with their bank would be very interested in such a service, while just 33% of the customers who are dissatisfied with their bank would be interested (Figure

10). While income level makes little difference in interest level, interest does differ by age group, as shown in Figure 11; consumers between the age of 18 and 54 are considerably more interested in a data management offering than are older consumers. Figure 10: Interest in a Bank-Offered Data Privacy Service by Satisfaction Level

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Figure 11: Interest in a Data Privacy Service by Age

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

4%3%4%28%34%44%50%67%62%53%46%Dissatisfied

(n=61)

Neither satisfied nor dissatisfied (n=119)Somewhat satisfied (n=409)Very satisfied (n=657)Q. How interested would you be in a bank-offered service that stored and

managed your personal information and enabled you to tell the bank(s)

who your data could be shared with?

(By level of satisfaction with primary bank)

Not interested—I don't

trust any bank with my personal information

Interested, but only if it

were free

Very interested and

might pay for it,

depending on how

much it cost

4%4%4%50%

49%

37%

18 to 34 (n=309)35 to 54 (n=512)55+ (n=441)Q. How interested would you be in a bank-offered service that stored and

managed your personal information and enabled you to tell the bank(s)

who your data could be shared with?

Very interested in this type of service and might pay for it, depending on how much it cost Interested in this type

of service, but only

if it were free

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Only 23% of Canadians believe that banks should not access their personal information for any reason (Figure 12). The high levels of customer satisfaction that Canadian banks have earned has led many consumers to feel that their primary banks can access personal information as long as they have given the banks permission to do so (Figure 13). Figure 12: Access to Personal Data

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

Figure 13: Access to Personal Data by Satisfaction Level

Source: Aite Group survey of 1,246 Canadian online banking consumers, Q1 2015

12%

23%

56%

I am willing to let my bank(s) access my personal

data, but only if I'm compensated for it I am willing to allow my bank(s) to access my

personal data but only if it's used anonymously My bank(s) should not access my personal

information for any reason My bank(s) can access my personal information

as long as I have given them permission Q. Which of the following statements do you most closely agree with?

(N=1,246)

43%

34%

21%

20%Dissatisfied

(n=61)

Neither satisfied nor dissatisfied (n=119)Somewhat satisfied (n=409)Very satisfied (n=657)Percentage of Consumers Who Agree That Banks Should Not Access

Their Personal Information for Any Reason by Level of Satisfaction

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While the data indicates that there is not a direct monetization opportunity for banks, such a

service will certainly add stickiness to the customer relationship. Precedent for this concept

already exists in Canada; the credentials of three of Canada’s largest banks can be used to log a

consumer into select Canadian government websites. This is just a small step toward broader

identity and data management services that banks could enable on behalf of their clients.

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CONCLUSION

The digital age is transforming the way in which data is managed and the expectations Canadians

have for their banks. Here are a few recommendations for Canadian banks:

?Don’t get complacent about the threats of disintermediation or cybersecurity.

While Canadian consumers are generally happy with their financial institutions, the

threat landscape on both fronts is moving rapidly.

?Prioritize investment in data security. This is even more critical now that breach

notification is mandatory in Canada. There is a strong correlation between customer

satisfaction and perceptions of banks’ ability to protect and use personal data.

Among consumers who are very satisfied with their bank, six in 10 say their bank

does an excellent job of protecting their personal data.

?Evolve your offering to increase your appeal to the growing population of digital

natives. Millennials exhibit much more willingness than do older generations to

bank with nontraditional firms. Strong online and mobile transactional capabilities,

robust security that does not intrude on the user experience, and excellent service

and support: this is the recipe to ward off those firms looking to encroach upon

banks’ terrain.

?Consider productizing security. Half of Canadians would be interested in a bank-

offered service that stored and managed their personal information and enabled

them to tell their bank who their data could be shared with. A product offering on

this front could not only provide an additional point of stickiness but could also help ward off emerging competition that has a less established security reputation. Licensed to KPMG - Not for External Distribution

RELATED AITE GROUP RESEARCH

Canadian Banking Consumers: Evolving Channel Preferences, December 2015.

Innovation in Financial Services: How Banks and Insurers are Gearing Up, September 2015.

Customer Loyalty: A Precious Commodity in the Digital Age, September 2015.

Global Consumers: Losing Confidence in the Battle Against Fraud, June 2014.

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ABOUT AITE GROUP

Aite Group is an independent research and advisory firm focused on business, technology, and

regulatory issues and their impact on the financial services industry. With expertise in banking,

payments, securities & investments, and insurance, Aite Group's analysts deliver comprehensive,

actionable advice to key market participants in financial services. Headquartered in Boston with

a presence in Chicago, New York, San Francisco, London, and Milan, Aite Group works with its

clients as a partner, advisor, and catalyst, challenging their basic assumptions and ensuring they

remain at the forefront of industry trends.

CONTACT

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