Benelux customers, especially younger ones, are more and more hooked on their phones and the idea of having all kinds of services right at their fingertips. Banking is no different. Traditional financial institutions, however, seem to be a bit late to the party and so far only a handful of digital-only challengers have broken into the market. Are they a force to be reckoned with?
When it comes to the number of users, the digital banking sector in the Netherlands, Belgium and Luxembourg is booming. In online banking penetration, the three countries are clearly in the lead, being ranked no. 4, no. 9 and no. 10 respectively among the 28 EU member states. Almost 89% of Dutch people used some form of online banking in 2018, while the figure is 68.7% for Belgians and 67.7% for Luxembourgians – all well above the European average of 54.3%.
Mobile is becoming king: today, 66% of the Dutch population bank on their phones, compared to just 6% in 2006 and 80% of mobile banking customers use their app at least once a week. For a growing number of customers, apps have become the primary channel for interacting with banks, overtaking local branches and even internet banking. In fact, about half of Dutch customers expect branches to eventually become obsolete. Similarly, about 45% of Belgians have a mobile-first attitude to banking and over 80% prefer to make payments on their smartphone. In Luxembourg, the figures may be lower but things are changing pretty fast. In 2018, 62% of smartphone owners had used their device for banking, up from 53% in 2016 and just 41% the year before.
Quick digital services have become a primal need
No wonder, really: according to Boston Consultancy Group’s 2015 report, two thirds of people would rather quit chocolate or alcohol than lose out on mobile internet access. More than half would sacrifice coffee and movies, a third would give up their cars and more than a quarter would even go without sex as long as they were connected. As W.UP’s Head of Alliances, Remco Veenenberg explains: “Nowadays mobile internet and quick services have become a primal need. And it’s only going to intensify with Gen Z becoming the largest population segment in a little while. Challengers keep wowing customers with their fast and slick mobile apps. Banks that can’t keep pace and offer the same experience will inevitably fall behind.”
At the same time, the Benelux countries are right on track to become a cashless society. In 2017, nearly a third of Belgians and Dutch were unlikely to carry cash, while in Luxembourg, the rate was 24% – all above the European average (21%). In response to this, cash machines are fast disappearing or becoming uniformised. For example, ING, Rabobank and ABN Amro, the three major Dutch banks, are launching bank-independent ATMs in 2019 to cut down on unnecessary costs while maintaining availability.
Digital maturity: A long way to go
However, financial institutions’ digital maturity in the Benelux region is far from advanced. In fact, Deloitte’s EMEA Digital Banking Maturity 2018, examining functionality, customer demand and mobile user experience at 248 banks across 38 countries, puts all three markets into the category of ‘digital adopters’, trailing behind ‘digital champions’ like Spain and Switzerland and ‘digital smart followers’, such as Finland and Norway.
The study also found that:
- Belgian banks pay more attention to user-friendliness than functionalities and are less under pressure from customers to broaden their digital services than financial institutions in the other two Benelux states, not to mention ‘digital champions’ like Poland and Spain;
- Dutch banks score lower on functionality for open banking and on services that go beyond traditional banking products. This may offer opportunities for fintechs to move into the market;
- Luxembourgian banks have a rather homogenous digital offering and solid day-to-day banking functionalities, but there’s still plenty of room for development in delivering a full-on digital banking customer experience.
Benelux digital banking market: enter with caution
So how easy is it to break into the Benelux banking market? Although competition and entrance barriers are fairly low, fintechs and digital-only banks eyeing these countries may face some difficulties. For starters, the Belgian and Dutch markets are highly concentrated, with a relatively small number of banks offering a wide variety of products and services.
Another major obstacle is customer loyalty. As many as 80% of Belgian customers have stayed with their banks for more than a decade, only 22% would consider shopping around for better deals and 85% claim to be satisfied with their current bank. However, Accenture warns that once you dig deeper, the relationship seems more like a convenient but largely loveless marriage, which could spell bad news for incumbent banks in the long run.
In the Netherlands, customers trust their own bank with their financial data way more than other financial institutions and non-bank players. It’s not a pretty picture for new entrants: while 61% trust their bank, payment providers get 32%, tech giants 9% and financial startups a mere 2% of trust. As for Luxembourg, 76% of banking customers said they had not used any financial providers but their main bank in the past year to access money services. That rate is the highest in Europe, with the European average being 58%.
Disruption from within or outside?
Many of the biggest traditional financial institutions in the Benelux region have been working to revamp their mobile offerings and several of them have set up stand-alone digital units under separate brands. In the Netherlands, ABN Amro has developed online mortgages, loans and savings platform MoneYou, Aegon has built up online bank Knab, and Rabobank has launched its Peaks savings app. ING Ventures also invests heavily in all kinds of fintechs, with one example being Dutch instant payments app Payconiq.
Despite incumbent banks’ strong current position, some local digital-only challengers have already set foot in the market. Dutch neobank Bunq introduced a new personal payment link service in July 2018 and teamed up with TransferWise to provide cheaper international payments in November 2018. It also offers debit cards, budgeting tools and saving features. Amsterdam-based online brokerage, BinckBank, has been active since 2000 and is currently being acquired by Danish lender Saxo Bank.
Trust in new challenger banks remains low
Leading European neobanks have also made forays into the region. Germany’s N26 ventured into the Benelux markets as early as in 2016 as part of its European expansion and UK rival Revolut’s services are also available in the Netherlands, Belgium and Luxembourg. The latter attracted 30-35,000 customers in Belgium alone by late 2018 without any marketing support and is aiming to increase its Belgian customer base to 100,000. “Revolut used to position themselves as quite anti-bank. However, in Belgium and Netherlands, they have adjusted their approach to the market,” Remco Veenenberg points out. “And rightly so: trust in new challenger banks remains quite low so Revolut branded its services as complementary to those provided by traditional players.”
The banking sector in Belgium seems to be getting ready for the challenges ahead: digital applications are picking up speed and are supported by significant investments, according to the European Banking Federation. In the Netherlands, new non-bank entrants have started shaking up the mortgage market. Luxembourg is becoming an important European hub for fintech and has started targeting new market segments, including Islamic finance. And with good reason. Deloitte suggests that “Open and Beyond banking will decide who will be future digital champion”.