I have blogged recently about the changing banking and financial services industry, particularly the need for large incumbent traditional banks to offer more innovative services that can rival those designed by the new Fintech (Financial Technology) solution providers. The issue at the heart of this debate is that the new players can design services from the ground up, ensuring that the customer is at the heart of the product. That’s difficult for the large companies to challenge, but this is a question of survival.
One major advantage the big banks have always had is that their customer base has been built up over many years. Banks are traditionally seen as the providers of financial services and they are trusted to do so because regulators control how they behave – most of the time. Banks have a large legacy of branding and trust and with millions of existing customers it is difficult for the Fintechs to break in despite offering a better service and price in many cases.
But I saw a survey from the US this week that highlights how this traditional resistance to change might be breaking down. 60% of American customers said that they would be willing to try a financial product from a technology company they already use. That doesn’t help the small startup with a great idea, but it does create a major concern for the banks because this means that customers trust Apple, Amazon, and Google enough to take out a loan or get a credit card from one of these companies.
In theory there is nothing to stop Amazon hunting down a small, but exciting and innovative online bank, purchasing the company and rebranding their services as Amazon. With an enormous loyalty club globally (Amazon Prime) they could market financial services to millions of potential customers very easily.
This breaks down the traditional defence of the banks, that you can’t trust small unknown startup companies with your finances. The next wave of competition for the banks may in fact be the Silicon Valley tech giants – a path that Apple has already started on with their Apple Pay system.
With a growing acceptance of Blockchain technologies and virtual currencies such as Bitcoin, perhaps there is even a challenge to currencies themselves? With billions of users, what would happen to traditional banking if Facebook created a virtual currency – Facebook Dollars – and a banking system that allowed free, instant transfers between Facebook users, and small loans and other credit facilities?
The growth of Fintech has been talked about for several years and the focus on customer-centric design was always the big advantage of the new companies, but if they start connecting to major international tech giants then we could see a banking revolution inside the next five years.
What do you think will happen next and can the banks react in time? Let me know what you think by leaving a comment here, or get in touch on LinkedIn.