Forget Fintech — Traditional Banks Have (Finally) Figured It Out
Please read the following article by Jake Levant from Forbes examining whether traditional banks are ready for digitalisation:
Forget Fintech — Traditional Banks Have (Finally) Figured It Out
By now, if your bank still views fintech companies and neobanks as a new breed of competition, you may have missed a pretty important memo — a few hundred million memos that is.
Fintech services and neobanks have been established for many years now and have risen up to take on traditional banks, and they’ve done so smartly, recognizing wide and gaping gaps in the service and experience that today’s customers have demanded for some time.
Many fintech services have seized these opportunities and grown into major contenders for today’s banking customers. Neobank Dave, for example, launched just four years ago and already boasts 10 million customers — and will be a publicly traded company this fall at a valuation of $4 billion.
According to the Financial Brand’s neobank database, leading neobanks have customer bases in the millions, with the leader being Webank at over 200 million. Fintech services such as Nerdwallet are serving over 150 million customers right from their smartphones, and there are a host of others not far behind.
Digital-First Banking Caught The Incumbent Giants Sleeping
In their early days, these digital disruptors started off simple, offering pre-paid credit cards and other basic product alternatives to entice banking customers to give the new, cool kid on the block a try.
Sure, not having the overhead of physical branches has helped these startups to offer lower fees and sometimes even no-fee models. But even more key to their growth has been their commitment to investing in digital technologies that elevated the experience for their customers.
Turns out, the digitally minded customers today took a big liking to that new kid on the block. Today, neobanks and fintech services compete against their traditional counterparts for high-value transactions like mortgages and car loans while developing sleek, simple and digital-first customer services.
For over a decade now, customers have grown to expect 24/7 online services for everything — from shopping for products on Amazon to streaming movies on Netflix. This digital transformation has spilled over into virtually every traditional brick-and-mortar vertical. Today, getting your banking done is seen exactly the same way by billions of banking customers.
That market has been silently screaming: “Give me what I want, where I want it and when I want it.” In a survey our company conducted of over 1,000 U.S. consumers in May 2020, 79% of customers indicated they want more all-digital processes from their bank in the future.
Entrenched in legacy processes and infrastructure, banks, in large part, were late to recognize and adapt to these new consumer expectations. Numerous critical banking processes today are still dependent on processes you could probably find in the ’80s and ’90s, like the use of fax machines and document scanners.
By their very nature, neobanks have prioritized completely digital processes that help customers avoid the friction and frustration these processes come with. They partner with fellow technology innovators for virtually every backend process.
Perhaps even more importantly, they’ve done the same with every customer-facing aspect, using digital ID verification solutions and other technologies that help streamline and complete banking processes while delivering the simplicity and speed expected by the Amazon generation of consumers.
With neobanks offering the digital services customers demand while chipping away at the banking market share, are banks doomed to the same fate as bookstores after Amazon arrived on the scene?
Covid’s Wake-Up Call Has Sparked “Bank Tech”
Banks and financial institutions understood the need to tackle these digital challenges before the pandemic, but if necessity is the mother of invention, the prolonged shutdown of physical branches has accelerated the need for banking innovation in unprecedented ways.
The realization that became crystallized for banking decision makers over the past year was: If neobanks and fintech services can make digital banking a reality, why can’t traditional banks do the same?
Financial institutions already have many of the ingredients they need:
• They have the financial leverage and capability to allocate investments toward technologies that turn paper-heavy errands into digital customer experiences.
• They possess a vast and longstanding reservoir of knowledge when it comes to servicing their customers. And while fax machines, printers and other outdated relics really, really have to go, they do have history on their side.
• They have brand trust — which is a major competitive advantage if they can match the digital game of their fintech rivals.
Bank’s Tech Test
For banks to create digital services that feel easy and intuitive for customers but also run in harmony with servicing and operations, banking leaders must consider what impacts this connected experience on both sides.
Onboarding umpteen software providers won’t do the trick. Meshing disparate solutions will lead to inevitable integration issues on the business side, and that usually spells gaps when it comes to how these processes are experienced by the customer.
So, if you are leading a financial institution, see if you have the tech needed to compete in this new bank-tech world:
• Can customers complete processes digitally, uninterrupted, regardless of whether it’s opening up a credit card account or simply adding a loved one to their account?
• Can customers bank easily and completely through their preferred channel? Banks need to reimagine and digitize existing processes both for customers and employees across branches, contact centers, apps and websites.
• Can banks comply with policies and oversight easier now than before? Have they leveraged the power of mobile, biometrics and security to make banking easier and more secure?
Digital transformation won’t stand the test of time with customers today if they still need to bounce from one channel to another — whether it’s filling out and signing forms, providing supporting documents or verifying their identity.
Investing in digital capabilities that can guide customers through every process and interaction is key to freeing up a bank’s resources to perform its core services and lose the legacy processes that hold it back.
Nothing less will do if a traditional bank is to be competitive in the age of neobanks.