LONDON: Banks are focusing on the wrong places in their attempts to stay relevant to a shifting customer base that is driven by technology and need to rethink their business models and value propositions a new study says.

A report from investment firm Anthemis Group and business innovation firm Claro Partners – based on their international Always In Beta research project – suggested that banks should be looking at digital natives but stressed that this demographic is no longer shaped by age and geography as much as by technology and structural trends.

"While many financial institutions are starting to focus on youth and millennials, the needs of the entire customer base are shifting, and banks need to develop new value propositions that align with and support the lifestyles of digital natives," argued Aldo de Jong, co-founder of Claro.

A digital native customer could be a 25-year-old graduate student or a 50-year-old entrepreneur but whatever their age they would have fundamentally different expectations from banking customers of the past, the report said.

In fact, they lack three qualities that are central to most traditional financial services products – predictable life paths, financial stability, and long term consumer loyalty.

That gives rise to several points of misalignment between banks and digital native customers.

So, for example, banks expect their institutional authority to equate with trust, but digital natives develop trust based on shared interest and their network.

And while banks emphasise products that help customers plan their future, digital natives want offers that help prepare them for an uncertain future.

Further, banks encourage delegation of financial decision-making, while digital natives want to be empowered to make their own financial decisions.

And where banks like to provide customers with raw information, digital natives want information overlaid with meaning and context.

"Banks are seeing their market share declining at the hands of small digital financial services startups that are made by and for digital natives," said Nadeem Shaikh, founder and CEO of Anthemis.

"The financial services industry has misunderstood the size and nature of the impact technology has had on customers," he added.

Data sourced from Anthemis; additional content by Warc staff