Every bank is aware of the rapid growth of the Fintechs (Financial Technology companies). These innovative startups have been carving out slices of individual financial services for a few years now, focusing on products such as loans and financial transfers and remittances, but according to new research from EY the threat from the innovators is increasing.
This contrast between the agile mobile-friendly Fintechs and the lumbering banks is leading to a belief that financial services are increasingly commoditised. In short, customers believe more than ever that all the banks are the same. Banks need to personalise and streamline customer experience to ensure they can differentiate their service.
The Fintechs are also creating a different type of competition. When one bank competed with another on products like loans the focus was on interest rates. Now there is a focus on the superior experience. A Fintech loan provider will typically offer a completely online experience, usually on a mobile device, with an extremely fast decision on the application. If banks cannot adapt and compete on customer experience then they will start losing significant market share to entirely new market entrants.
The answer, according to the EY research, is for the traditional banks to think and act like Fintechs. But how can big companies with legacy technology and enormous branch networks behave like scrappy startups? EY created a checklist of the most important areas where banks can start emulating startups:
- Radical simplification of the customer journey
- Truly end-to-end customer engagement, with fully integrated and coherent channels
- Simpler products that are easier to understand, rationalised product portfolios and more transparent pricing
- Banking ubiquity, where core services are embedded within digital personal assistants (e.g., Apple’s Siri or Amazon’s Alexa) or via other platforms
- Serving narrower segments of the market (e.g., teenagers, seniors, expatriates or frequent travelers)
- Entirely new lines of business, partnerships and joint ventures that explore new product territories
There are some key threads in this advice – areas that are relevant to every industry, but that are essential if banks want to realistically challenge new market entrants:
- Simplification: services need to be simpler, faster, and easier to access and manage.
- Personalisation: I want to know about products and services relevant to me and nothing else – don’t try selling me a loan for a car unless your data analysis tells you I’m looking for a car.
- Channels: be mobile-friendly, be voice-friendly, be everywhere that the customer wants you to be. Don’t ask the customer to come to you, go to them.
EY concludes that Fintech innovation could be an existential threat to some banks. The most profitable customers are already being tempted by the better rates and better service available from new brands. It is possible that only the least-profitable customers will remain at some major banks as all the active customers will leave. The focus on how to prevent this is clearly the customer experience. A decade from now, I’m sure some major banking brands will have vanished and some new brands will be enjoying great success, but not every bank will fail – those who can redefine their purpose and become customer-centric in their thinking will be able to retain – and even attract – customers.
What do you think about the EY research? How dangerous is the Fintech threat to banks and in particular, individual services such as loans? Let me know what you think by leaving a comment here, or get in touch on LinkedIn.