Australia’s big banks are increasingly moving to mimic the emphasis the neobanks have placed on the financial health niche.

A new report by Backbase says many of the financial health tools used by smaller neobanks are already being adopted by mainstream financial institutions.

Ninety-two percent of ANZ-based financial institutions surveyed said they were either actively expanding or planning to expand their financial health capabilities, with 60 percent citing it as a critical priority.

According to the report, "Traditional banking is inadequate because it doesn't help consumers manage their finances -- especially growing debt and the need to meet savings goals and plan for a secure retirement."

Backbase said that COVID-19 has only highlighted consumer needs for new and more sophisticated digital banking services.

Only 51 percent of retail banking customers surveyed said they were satisfied with their access to financial management tools, while 33 percent said they were dissatisfied with the level of personalized recommendations made by their current bank.

Commenting on the report, Backbase Asia Pacific Regional Vice President Iman Godosi said "digital money and financial wellness management is no longer a gimmick and we are not far from being the primary interface between banks and their customers across the sector."

In fact, 74 percent of retail banking firms consulted in the report said they already use financial health tools to encourage customers to build better financial habits.

Mr Ghodosi pointed to the rise of buy-now, pay-later operators such as Afterpay and Zip as a key driver of this, saying they had taken traditional banks by surprise.

"It seems they don't want to repeat that mistake with the neo-banks and their mobile-first personal financial management tools that already add value to the lives of many Australians," he said.

Describing this shift in focus as the start of the "Era of Engagement Banking", Mr Godosi said traditional banks were now looking to re-engineer the customer experience from the ground up, rather than making isolated technology investments.

"In the age of Netflix and Spotify platforms, people want the same high level of customer focus and flexibility for the financial services they subscribe to," Mr Godisi said.

He said legacy institutions are now looking to offer more than just online and app-based banking, including new tools and services for cost analysis, budgeting, savings management, credit rating improvement.

"[Consumers] want access to their personal finances anytime, anywhere, through any channel and tools on how to manage them; traditional banks are lagging behind and they know it,” he said.