Greg Taylor, Managing Director, Marketo
You can understand if banks are a little concerned. Fintech is enabling businesses – many of them new – to engage with customers without the overheads faced by the traditional banking sector. However, the battle is not lost, so long as the big banks understand what is driving this transformation.
Banks were quick to embrace technology. We have had home banking since those dial-up internet days of the eighties. Banks have come on leaps and bounds since, with mobiles used for account management, touch payments and as a digital wallet.
The Dangers that Lurk ahead
Despite this early lead in technology, banks face a challenge – at least, banks as we see them today. In his annual letter last year Bill Gates highlighted how, with two billion people without a bank account, many will be storing money and making payments through mobile money providers, not traditional banks.
"Banks have come on leaps and bounds since, with mobiles used for account management, touch payments and as a digital wallet "
Take Lending Club as an example. They offer peer-to-peer lending. Investors provide a direct line of credit to the borrower. It takes the bank out of the equation. There are similar examples in the spheres of insurance, forex and superannuation. Is it a threat to the traditional banks?
Investment in Fintech is on the rise. In Asia Pacific, it reached US$3.5 billion in the first nine months of last year. Hardly surprising when massive bank profits are up for grabs. In Australia the big four banks make more than $30 billion between them – it’s a highly contestable market.
Less reliance on cash presents another challenge for the banks as we see less need for branches and cash machines. A recent CNN report claimed just 6% of all payments in Scandinavia rely on cash, with mobile payments driving the trend.
However, banks still have a future. Renaud Laplanche, CEO of Lending Club, says they are a threat to the traditional model of banking, not necessarily a threat to banks themselves. The banks have to embrace the new technology. Fintech will make insurance more specific, loans easier to obtain, investments cheaper to initiate – and will be strengthened with analytics to match products with people.
Potentially new entrants could emerge, but they will be fighting against the big banks with funding, customers and historic data.
Banks have another inherent advantage. They can create credit. In effect, so long as they fit within banking regulations, they can lend out money they do not have. Fintech competitors could potentially do the same, but this may make them bound by the same regulation and they would suddenly become, well, a bank.
Fintech’s more likely influence is in chipping away at bank profits. Banks need to do something, quickly, to protect this position, and keep their shareholders happy. Buying out fintech companies is not the only answer. They also need to look at how these companies operate and adapt similar models themselves.
As with any disruptor, fintech gained traction because it directly answers customers’ wants and concerns. We have seen how Uber has done it with taxis – people wanted to book and pay on their mobile, see where the cab is, and not feel like they were being ripped off. Regular cabs could address all of those issues but, by and large, chose not to. Banks cannot make the same mistake.
It is all about the Customer
Close customer engagement is at the very heart of the solution. The key differentiator in many new apps – not just in fintech – is in how customers are involved with the solution. The choice of product, including how and when it is delivered, personalised and delivered through intuitive interfaces. The other key element is transparency – people want to know what they are paying for.
Marketing automation is the key to this. The better the process for communicating the right message at the right time, the more satisfied the customer would be. And, increasingly, these communications are not focused on acquiring new customers, but ensuring existing users understand what is happening as they engage with the application. In the fintech space, it could be a message to say that there is a new opportunity to invest with a company matching your chosen criteria, or the chance to receive a lower insurance premium based on your observed driving behaviour or frequent visits to the gym.
Imagine that. A bank telling you that they could reduce your insurance premium. They would never do that would they? On the contrary, an app would, because its focus is simply on the user.
That’s why there needs to be a massive culture shift in the banking sector. They are used to holding the purse strings, but now the customer holds the power. Fintech companies represent a new, intuitive way of dealing with money and banks need to behave the way they do.
Effective, timely, personalised, customer-centric communication is the key issue. Messages need to be what people want to know, not what banks want to tell them. If a bank gets that right, people will love them for the technology and capability they provide. If they get it wrong, people might still use a bank – just a different one. Perhaps one that was not around a year ago.