Technology and evolving customer demands are having a dramatic effect on the way today’s businesses operate. Banks, which have relied on tried and true operating models for decades, are now witnessing a major shift in the market with new players such as FinTech companies entering the space. According to a PriceWaterhouseCoopers survey of global financial executives, “The vast majority of traditional banks and credit unions (83%) believes part of their business is at risk of being lost to standalone Financial Technology (FinTech) companies. Among bank executives, that figure reaches 95%.”
As evident in the figures reported by PwC, many of these new FinTech entrants are in direct competition with banks and credit unions (or at least a part of their business). Yet, they bring with them innovative and cutting-edge digital banking ideas utilizing the latest technology and catering to the digital generation. In this way, these FinTech companies that are looking to disrupt the traditional banking model can actually offer great inspiration for already established institutions.
Digital Banking Inspiration from FinTech Disruptors
Here are four FinTech disruptors that are changing the way consumers bank — and that could provide inspiration for your bank or credit union.
1. Peer-to-Peer Payment Systems
Peer-to-peer payment systems like Venmo gained traction amongst the millennial generation and are beginning to make their way to the broader consumer population as banks consider the appeal in this convenient, paper-free payment approach. In fact, according to an article in the LA Times, “peer-to-peer payments could someday overtake cash and checks as the primary way individuals pay each other, and they even could make inroads at the cash register and with businesses that send refunds and other payments to their customers.” With peer-to-peer payments, consumers can send or request money from each other with only an app. It’s all digital and almost immediate (transferring the money to a bank account can take a couple days), giving the consumer autonomy without the reliance on a larger institution to initiate the transfer.
2. Artificial Intelligence (AI) and Machine Learning
Startups like Branch.co, ZestFinance and MyBucks are using AI and machine learning to offer low-rate payday lending loans. American Banker explained, “AI can make a difference on several fronts, the startups say. It can process enormous amounts of data that traditional analytics programs can’t handle, including data scraped constantly off the borrower’s phone. It can find patterns of creditworthiness or lack thereof on its own, without having to be told of every clue and correlation.” By relying on data and algorithms, these startups believe they offer a faster, more accurate and unbiased way to determine a consumer’s credit worthiness and their corresponding interest rate. Similarly, by removing the loan officer from the equation, these FinTechs can save on costs and ensure a profit from their low rate loans.
3. Mobile Tech with a Twist
The importance of embracing mobile technology is not new in the banking sector. But what is new is how certain FinTech startups like Moven are using the mobile platform to offer services that help consumers better manage their money. Moven, which is an online bank of sorts that works alongside traditional banks, is giving consumers insight into their spending habits — offering them tools to see where their money is going and how they can better prepare for the future. It’s all about transparency and putting the consumer in control of their financial health.
4. Robo Advisors
Betterment, SigFig and Wealthfront are three of the most well-known robo-advisor startups offering computer-generated financial advice in place of a human financial advisor. While the technology to create automated investment advice is not new, access to it (by those who are not wealth managers) is. Following the FinTech trend, Betterment and other modern robo-advisors deliver the investment advice directly to the consumer, without having to go through a middle man (wealth manager). It’s simpler, more accessible and cheaper for the consumer. All wins in the digital age.
Witnessing the success of FinTech robo-advisory startups, and the unmet need they are filling within the market, banks have begun jumping into this market. Bank of America recently introduced its own robo-advising service, Merrill Edge Guided Investing, and this summer Wells Fargo plans to launch a robo-advisor called Intuitive Investor that it created in partnership with SigFig.
If You Can’t Beat ’Em, Join ’Em. Why Banks are Starting to Partner with FinTechs.
As FinTech’s continue to soar in popularity, more and more banks are realizing that the new kids on the block may be here to stay. Today there are more than 2,000 FinTech start-ups as compared to 2015 when there were only 800. This is why many banks and credit unions have changed their approach; instead of competing with the FinTechs, they are trying to partner with them. As Forbes reported,
“For banks, fintech partnerships offer a fast and iterative approach to innovation without the need for massive capital expenditures – and they can also help to promote a higher standard of trust with customers. For fintechs, banks come to the table with deep pockets, massive customer bases, vast amounts of real-world infrastructure and big data.”
This newly amicable relationship between banks and FinTech start-ups (or as McKinsey refers to them, “Fintech attackers”) can be a win-win for both sides. McKinsey wrote,
“Successful fintech attackers will embrace “coopetition” and find ways to engage with the existing ecosystem of banks. Lending Club’s credit supplier is Web Bank, and PayPal’s merchant acquirer is Wells Fargo. In the same way that Apple did not seek to rebuild telco infrastructure from scratch but instead intelligently leveraged what already existed, successful fintech attackers will find ways to partner with banks—for example, by acquiring underbanked customers that banks cannot serve, or acquiring small-business customers with a software-as-a-service offering to run the business overall while a bank partner supplies the credit.”
The FinTech Appeal
FinTech is gaining momentum because the services offered appeal to the majority of consumers today. Most FinTech companies offer the following benefits:
• Customer autonomy
• Distinct capabilities that are not part of a bundled service
It should come as no surprise that these are all extremely appealing characteristics for 21st-century consumers, especially millennials and the digital savvy.
The majority of FinTechs all share a common strategy — transferring control to the customer. This means giving consumers the reins when it comes to making the best financial decisions for them, through transparency and easy access to information.
At SilverCloud, we are helping banks and credit unions do just that — give their customers and members the ability to access all the information they need through digital banking channels without ever having to pick up the phone. We are helping banks and credit unions evolve with the demands of customers by providing an engaging digital experience that lowers support costs and drives more revenue through a better experience for the customer and member.
To learn more about how SilverCloud can help your bank or credit union improve the digital banking experience, contact us.