Banks are falling short of customer expectations, according to a new report released today.

Perhaps it is more accurate to say that banks can’t catch up with customer expectations, which keep rising higher based on experiences with nonbank applications.

Three major trends emerged in the 2015 World Retail Banking Report from Capgemini and Efma, which polled 16,000 customers in 32 countries. Bill Sullivan, head of global financial services market intelligence, told Bank Innovation that none of them are particularly good news for banks.

1. Customer service levels are stagnating or deteriorating. “Expectations are rising at a faster pace than banks can handle,” Sullivan said. “With Generation Y, this is even more dramatic.” Profitable customer behaviors is also on the decline, and again it’s the younger set who are behind the shift. “They are less likely to take on debt, more likely to leave, less likely to refer friends or buy additional products,” Sullivan said. “They are less loyal to brand.” Millennials are not the most profitable bank customers, but they are starting to make their presence felt in a way that is slightly ominous for banks. Add to the bad news that customers still value branches, according to Sullivan, so banks are prevented from saving money by reducing their physical footprints.
2. Competition from nonbank players is accelerating. “Banks still underestimate nontraditional players, and struggle to match their agility,” Sullivan said. This news might defy belief, considering all the energy in the FinTech space lately. But the majority of bank executives don’t believe serious threats to core businesses will materialize in the next three years, and are still unsure of the impact major nonbank players will have, Sullivan said. But to their credit, bank executives realize that they face significant headwinds in the battle for customer experience: 83% of executives said customers were comfortable banking with internet and tech firms, but only 65% of executives said they were comfortable banking with banks. Across every region of the globe, customers were less likely to buy an additional product from their bank than they were a year previously.
3. Investments have focused too much on the front-end, to the detriment of the back-end. It makes sense that banks, recognizing the challenges in customer experience, would devote resources to the front end, but Sullivan believes this strategy has backfired. “They have set high expectations then not delivered on them,” he said.”With the back-end underdeveloped, the ability to customize and personalize is challenged.” Survey results indicate that the next three years will see more funding of front-end, customer facing technology, with the back end receiving fewer resources.

“There are great opportunities for banks,” Sullivan said. “But there are also warning signs about getting serious. They must adapt at a different pace to match competitors not burdened by the same regulations.”

Banks are in a bind, according to this report, stuck between the need to keep the lights on in the back-end and the need to please capricious millennials on the customer-facing side. Furthermore, the challenge applies equally to banks in every region of the world. You could be forgiven for asking, What else is new?