Do banks need to provide better clarity and support to their customers whilst abroad?
Whether it is spending money whilst on holiday, sending cash to friends or relatives in foreign countries, or making payments during business trips abroad – bank cards are no longer used for domestic purposes only.
The pace of change in the way we spend money in foreign countries has been exponential. Only a decade ago, consumers relied on transferring cash into local currencies or using travellers cheques whilst abroad, with bank cards typically only used for large purchases or emergencies. 10 years on, and as a result of the huge digital transformation witnessed across the banking sector, the scenario could not be more different.
Keeping up with this pace of change has been key for traditional banks to remain competitive. Whilst pre-paid currency cards arguably paved the way for lower foreign spending fees, it was the rise of the neobanks a few years later with their 0% foreign charges that helped transform the way we use our cards abroad today.
Our latest Banking Disruption Index looks at where we are now with card usage abroad, and which type of bank – neobank or traditional – is winning with the consumer. Our research found there is a frustration amongst consumers who face foreign spending charges, presenting a clear area for financial institutions to review their consumer offering for foreign card usage.
Consumers unhappy with fees
Through our research, we sought to understand two key areas. The first was whether consumers understand their bank’s foreign spending charges, the second was how they felt about it.
To do this we needed to understand how payments abroad are made and the frequency.
On average, consumers who make transactions outside of the UK, do so four times a year. The main reason for doing so is for leisure travel (57%), followed by transferring money to friends or family abroad (32%) and business travel (12%).
Card transactions are the most popular method of payment, with almost half (47%) of consumers using a bank card from either a traditional bank or a neobank. Cash remains in high usage, with 38% of people using it whilst abroad, followed by pre-paid cards (15%).
Whilst banks are required to clearly advertise any spending charges, the research found that just over a quarter (26%) of consumers understand their banking providers’ fees for spending abroad. The research also found that 32% of consumers do not think that their banks’ fees are fair and reasonable, and a further 38% admit to not even knowing what the fees are. A quarter (25%) of consumers want their bank to provide better transparency over transaction and exchange charges.
The rise of the neobanks
The zero charges on card purchases when spending abroad was a major selling point for the neobanks when they first launched, and it is clear from the research that this continues to be so today – particularly for millennial and gen Z age groups.
Over a quarter of 25-34-year-olds (28%) and a quarter of 16-24-year-olds (25%) rely on their neobank card to make payments whilst abroad. In fact, it is the more popular choice for both age groups compared to cards from traditional banks.
There are many reasons for this. Across all age groups who use a neobank, the main reason they chose to do so whilst abroad is for the lower fees (39%), followed by the ability to choose whether to spend in GBP or local currency (34%), which can help to keep transaction fees down. The ease of use of a digital banking app was another reason for using a neobank whilst in a foreign country for 29% of consumers.
Time for banks to provide better clarity to their customers whilst abroad
Whilst traditional banks may think that consumers use neobanks abroad and then return to their traditional bank once home, the research paints quite a different picture. It indicates that 18% now use their neobank as their main current account, and just under a third (30%) use it as a secondary account.
Traditional banks which continue to impose higher foreign fees and exchange rates may be leaving themselves vulnerable to customers switching to a newer digital-only banking alternatives.
The data from our latest Banking Disruption Index also identifies clear opportunities for the traditional banks to improve their offering for customers who are travelling abroad. A lack of clarity over fees and the high rates more generally, have been highlighted as concerns amongst many consumers in this research.
However, there are simple ways that banks can improve their customers’ experience whilst in a foreign country. For example, more than a quarter (28%) of consumers would like their banking provider to offer real-time currency exchange rates.
Opportunity for banks to improve
This feature is commonplace within neobanking apps, and there is a significant opportunity for traditional banks to follow suit and provide the same offering through their own mobile apps. In addition, 29% of 25-34-year-olds highlighted that they would like the ability to pay in GBP or local currency from different ‘pots’ held separately in their account.
One in five (20%) also want the ability to access their bank’s customer service whilst making payments abroad. Improvements to banking apps that allow real-time messaging with customer service representatives can support timely and cost-efficient communication between customers and their bank, providing additional support and reassurance whilst abroad.
Similarly, 19% would like both real-time spending updates sent directly to their phone, as well as real-time advice on the most cost-effective ways to pay (18%). Both services could be provided through enhancements to a bank’s mobile app features.
This demand for better banking services provided through technology was further evidenced in the research, when consumers were asked if their banking partner was keeping up with technology quickly enough. Surprisingly, despite widespread digital transformation of the sector, only 63% of consumers believe this to be true. Additionally, 13% of consumers surveyed also admitted to be currently looking to switch banking providers.
Conclusion
As we enter the summer months and foreign travel increases, there is a real opportunity for banks to provide better clarity and support to their customers whilst abroad. The traditional banks seemingly have the most work to do. But small changes to their digital offering, to make foreign spending easier and clearer to understand, could improve their customers’ experience whilst abroad almost instantly, without having to review their foreign spending charges.
Meanwhile, even though neobanks continue to lead the market on low foreign transaction fees, they also have their own challenges. They must still ensure their wider offering is attractive enough to convert the consumers who only use their services whilst abroad, into full-time active current account users back at home. Understanding the role that digital services can play in making the customer experience better abroad and at home, will be key for banks who want to remain competitive in this challenging market.
Download GFT’s latest Banking Disruption Index report in full here
