Fintech apps like Apple Pay and Android Pay have started redefining our wallets. Who needs cash when you can use a card to pay for your morning bus ride, and your phone to pay for anything else? Over 11 million locations now accept Apple Pay and growth is expected to exceed more than 400% this year.
The way we purchase everything online and offline is changing quickly. PayPal used to be most closely associated with purchases from the auction site eBay, but they have been extending their service into a more general trusted payment system. Recently announced upgrades to the PayPal system include voice activated cash transfers using Siri voice recognition on iPhone.
Saying “Siri, could you send John £25,” is now all you need to do to transfer cash. Who would have imagined that lending a friend the money they need to buy you a drink could be so easy?
But these examples are just one part of the fintech (financial technologies) revolution sweeping the banking industry. Technology companies are exploring the entire retail banking world and rebuilding each component service to be more customer-centric. Then these services are being offered back using fintech apps, at better prices than those provided by banks.
Payments, bank loans and foreign exchange transfers are all areas where specific fintech apps are creating an advantage for customers. Zopa is a great example. They have been around since 2005, and function by offering investors an interest rate for savings that beats high street banks. They use these funds to offer loans to customers at lower interest rates than the banks will lend. They effectively match up savers with borrowers with some parcelling of loans in the middle, so a borrower might actually be borrowing a small amount from 100 investors, protecting the investors from loans that are not repaid.
Zopa can offer better rates because they only exist online. They don’t have any of the overheads of a full retail bank with thousands of branches all over the country, all filled with employees following procedures that vary little from those created decades ago. Compare the process of asking your local bank for a loan with the online fintech equivalent where you can ask for the money in minutes and get a decision in seconds.
But some fintechs are going further than just offering a single service. Atom Bank is a full service retail bank for UK customers, but they only operate using an app, so they also have the advantage of avoiding an expensive branch network. Atom has deployed a very clever artificial intelligence system on their customer service centre that captures and learns from every single customer enquiry. They believe it will eventually be intelligent enough to answer most customer questions without involving a human advisor.
The retail banking industry is understandably worried. Fintech apps are offering banking services cheaper than banks can; but more importantly, they are designing services to be customer-centric. If you design a new foreign exchange service today then you can ignore decades of procedure and process and just focus on making it simple for customers to use.
But banks are not finished yet. Brand and reputation counts for a lot when it comes to finance. Customers still value and trust many of the traditional bank brands and the banks already have a customer base in the millions – most fintechs need to ramp up their customer base from nothing.
But banks cannot fight this kind of progress on reputation alone. They need to start either buying up some innovative fintechs or learning from the customer-centricity of their new rivals. Customers will not stay loyal forever if the same services are cheaper and easier to use elsewhere. Companies like Nokia and Kodak were dominant in their fields and had millions of customers, but their industries changed; the same could happen to retail banking one day.
What do you think will happen next in the fintech banking revolution? Leave a comment below or get in touch on LinkedIn and let me know where you think banking is going.