The emergence of Fintech companies is changing how we bank, disrupting the banking industry, and creating an ever-evolving landscape. Their customer-centric models are a challenge to established banking practices, pushing financial institutions to rethink their strategies.
The concept of change is not new to the banking sector, which has weathered decades of economic shifts and societal transformations. However, the digital rise is more than just another wave to ride out. It brings a new, undeniable force that compels conventional banking to evolve or face obsolescence. The question for traditional banks is no longer if they should learn from fintechs, but what they need to learn and how swiftly they can implement these lessons.
The following sections delve into four vital areas where bankers can take a page from the "Fintech Playbook."
Focus on the customer
Traditional banks can leverage one significant advantage they still hold over digital competitors: the potential for face-to-face service in physical branches. According to a study, over two-thirds of digital bank users in the US express a desire for the perks offered by physical banks. Yet, banks often find their customer experience hampered by bureaucratic procedures and drawn-out paperwork due to their vast size.
For instance, TymeBank, a South African neo-bank, has streamlined its customer onboarding process. New clients can register within minutes using data from the national registry and quickly print their debit cards from a nearby kiosk. In contrast, traditional banks can take weeks to deliver cards to customers, showing a stark difference in expediency and customer focus.
Recognising the threat from internet banking and the need to attract modern customers, many traditional banks have been working towards reimagining the future of physical branches. Some have adopted a showroom-style design to provide hands-on experience with their banking apps, while others have repurposed their branches into customer training venues where patrons can learn to use technologically advanced services to maximise their finances.
While reimagining the future of physical banking will no doubt improve customer experiences, digital banking is growing in popularity. Yet, traditional banks are still catching up with their fintech competitors on multiple fronts.
Niche banking is dominated by fintechs who understand their customers well and specialise in building online digital banking products that serve their unique needs and experiences. One-size-fits-all solutions offered by fintechs’ traditional counterparts are simply not suited to fulfil the needs of specific segments. In addition, such niche products are often a mix of high-margin lower volume and high-volume lower margin aimed at profitability. This is very different to the straight-line trajectory of traditional banking.
Innovation and the underbanked
Although, some argue that the risks outweigh the benefits for the highly regulated traditional banks, banking for the underbanked is another front in which banks are playing catch up. This is where tech and innovation come into play and yet again, directly linked to how modern tech is utilised for serving the underbanked while keeping compliant with regulatory frameworks.
Common to niche banking and banking for the underbanked is fintechs’ ability to better leverage dynamic risk profiling. The game has changed, and static risk assessments have made way for fluid, adaptable profiles that respond to macroeconomic factors. Integrating various data points allows fintechs to be the enablers of this dynamic approach, fostering seamless integration of diverse data sources and contributing to a more nuanced understanding of risk.
Lastly, modern technology and everything in its meaning – UX/ UI, customisation, speed, APIs, communication protocols and more – still remain the bugbear of traditional banking systems.
Focus on affordability
The underlying business model of traditional banking is straightforward: it is centred around granting credit and collecting deposits. As opposed to their challenger-bank counterparts, banks can offer a breadth of services that challenger-banks can’t and that’s where they focus their efforts.
In other words, maximising the spread between deposits and loans across a large range of financial services.
Cost efficiency is another key area where traditional banks can learn from their fintech counterparts. For example, challenger banks often offer better interest rates on deposits, making them more competitive than most traditional banks.
While digital financial services often provide more affordable solutions due to their lower overhead costs and nimble structures, traditional banks are catching on to the importance of affordability as a virtue.
They can adopt this ethos by streamlining processes, reducing fees, and leveraging technology to create more affordable financial products. As a result, banking becomes accessible to a wider audience, transforming affordability from just a trend to a vital necessity. In doing so, banks can also reduce their operations costs and remain competitive within the cost-effective fintech landscape.
Focus on partnering with fintechs
Partnerships between traditional banks and fintechs can unlock the potential for immense growth and innovation. Fintechs bring agility and cutting-edge solutions to the table, while traditional banks offer stability and a vast customer base.
Collaborating means that banks can more swiftly integrate fintech advancements and maintain their competitive edge. Moreover, these partnerships can provide banks with access to new technologies and capabilities that can help them enhance their products and services to reach new customer segments.
As banks collect increasingly personal data for hyper-personalisation and micro-segmentation, it becomes even more crucial to safeguard customer data and build trust. Recent cybersecurity incidents have made consumers understandably wary, underscoring the critical need for banks to prioritise data security.
According to research from KPMG, a majority of consumers are increasingly concerned about data privacy and ethical usage of their data. To address these concerns, transparency about data processing, usage, and security must be a cornerstone of a bank's approach. This means not just adhering to regulations such as the General Data Protection Regulation and the California Consumer Privacy Act, but also going a step further to prioritisezero-party data — data that customers willingly share.
Banks can create more accurate customer profiles, and better meet customer needs, by securely collecting customer data and offering rewards or discounts for its use. This builds better brand strength and relationships with customers.
People want to feel that their service providers understand their needs and have their best interests in mind. Banks, like other service providers, can strengthen their ties and stimulate customer engagement by offering personalised experiences. By leveraging vast amounts of data and demographic trends available to them, banks can gain a strategic advantage by offering a customised, cutting-edge digital experience.
Personalisation in banking can take various forms. For instance, engagement via private messaging channels for customer service is a simple layer of customisation that 89% of consumers expect from brands and banks. However, for more complex services like mortgages and financial advice, personalisation could include offering a one-to-one meeting with a human agent, either digitally or in person.
Customers also desire hyper-personalisation in managing their financial health. Many express interest in tailored help for avoiding extra fees and receiving account alerts to better manage their finances. Younger customers, in particular, value personalised banking services. These digitally-driven preferences emphasise the importance of personalising customer experience as a sound strategy in banking.