The Shift in Banking: How Fintech and Changing Preferences Are Reshaping Financial Institutions

In a groundbreaking study published by Cornerstone Advisors, a notable trend has emerged that highlights a significant movement of over $2 trillion from traditional banking institutions into fintech investment and high-yield savings alternatives. This shift underscores an evolving financial landscape where consumers are demanding a more integrated and personalized banking experience.

The report, titled "Stemming the Deposit Outflow: The $2 Trillion Investing Opportunity for Banks and Credit Unions," delves into the reasons behind this dramatic migration of funds and reveals key insights about consumer behaviors and preferences.

The Decline of Community Banks

Community banks and credit unions, historically grounded in their local markets, are facing unprecedented competition not only from fintech companies but also from changing consumer needs. One of the core findings from the report indicates that a staggering 65% of the lost deposits from these institutions come from Generation X and baby boomer customers. These demographics are becoming increasingly dissatisfied with the traditional banking model as they seek out more flexible and rewarding financial services.

Interestingly, the study also highlights a significant portion of the younger demographic, referred to as 'zillennials' (a blend of Generation Z and millennials), who are perceived to be disengaged from investing. Nearly half of these individuals indicated they are not investing currently, primarily due to a lack of financial knowledge and perceived financial constraints. This signals a critical gap in financial education that banks must address to retain this emerging customer base.

Expectations from Financial Institutions

The findings also echo a larger trend wherein more than 50% of zillennials are inclined towards banks offering a seamless integration of checking accounts with investment opportunities and various financial benefits. As a result, conventional checking accounts are increasingly seen as insufficient. As noted by Ron Shevlin, Chief Research Officer at Cornerstone Advisors, many consumers are beginning to view their checking accounts merely as temporary holding spots for their money, while they seek better-performing investment options elsewhere.

This sentiment is further emphasized by the lukewarm satisfaction ratings consumers have for their checking accounts, scoring them an average of 7.8 out of 10. Notably, younger generations appear even less satisfied, with a significant percentage expressing a strong willingness to switch banks if offered more innovative and integrated financial solutions that combine investment opportunities, credit management, and other benefits.

The Role of Cryptocurrency

The study also explored the rising influence of cryptocurrencies in shaping investment portfolios. Among younger investors, approximately 25% of Gen Z and 33% of millennials hold crypto assets. Shockingly, the typical zillennial investor allocates about 25% of their investable assets to cryptocurrencies, with a notable minority investing over half of their portfolio in this digital currency. This shift in investment strategy suggests that banks and credit unions that overlook this trend risk alienating a considerable segment of their clientele.

The Concept of Composable Finance

What consumers are increasingly seeking is what can be termed as 'composable finance'—a digital ecosystem where they can save, spend, invest, and grow their financial resources all in one seamless experience. Kian Sarreshteh, CEO and co-founder of InvestiFi, articulates that banks are losing not just the tech-savvy younger clientele but also anyone keen on actively growing their wealth. As consumers rapidly adopt these modern solutions, traditional banks must urgently innovate or risk losing their customer base.

In conclusion, as the findings from Cornerstone Advisors illustrate, the landscape of banking is drastically changing. Traditional institutions need to adapt swiftly to these emerging demands and trends, or they may find themselves outpaced by the ever-evolving fintech industry. The migration of consumer funds is not an abandonment of banking services, but a clear call for banks to deliver measurable and integrated value through innovative offerings. To explore further insights, visit the full report available on Cornerstone’s website.