Banking’s big paradigm shift equals big tech. This force dictates the industry's ongoing transformation and that’s to be expected for this undeniable reason: Big tech dominates every facet of modern life.
Best-in-breed platforms such as Netflix, Uber, Amazon and Google act as concierge services and set the standard for how consumers interact with the world. Their digital-first business models set high benchmarks for consumer expectations—benchmarks that consumers now demand that financial services providers meet.
And if banks don’t answer the call, they will. Big tech’s major players—working from a “pain points” paradigm—have identified customer experience gaps in financial services. Swift to act, they then seize on those opportunities. Amazon Lending, for instance, has made more than $3 billion in business loans to Amazon retailers.
On the legacy banking front, financial institutions are staking their own claim in fintech—but once again, the watchword is “big.” Partnerships by industry heavyweights Bank of America and JPMorgan Chase with the digital payment platforms Zelle and WePay respectively indicate openness to this new norm.
Meanwhile, Bank of America has deepened its commitment to fintech with the launch of its AI assistant, Erica. Erica has helped nearly 5 million users since its debut, and BofA’s digital banking arm accounted for 27 percent of all sales during the final quarter of 2018. (Listen to Michele Moore discuss the bank’s road to Erica on the BAI Banking Strategies podcast.)
But that’s hardly the case elsewhere. To remain relevant in the face of change, more legacy banks must partner with fintechs and leverage their capabilities to combat big tech's emergence.
The legacy lag
As consumer expectations evolve, legacy banks are struggling to keep pace. Paper-based processes, in-person meetings and electronic delays frustrate consumers now used to two-day Prime shipping and instant video streaming. Banks may have well-founded reasons for using the old models. But digital-age customers don’t want to hear them.
Younger consumers crave personalized, interactive experiences via digital and mobile channels, but many banks have failed to adjust. While previous generations exhibited more brand loyalty, Millennial and Gen Z consumers happily dismiss brands that don’t personalize. They expect instantaneous access to information and services that adapt to preferences—and will shop around if a product doesn’t measure up.
Easy access to personal information, account balances and other base-level financial data is just a starter, though. Modern consumers crave banks that create efficient end-to-end experiences based on what the data reveals.
Banks trying to remain steadfast in a convenience-first must provide services that stress lifestyle over meat-and-potatoes banking. As silos crumble and consumers demand personalized care, banks that meet their expectations through customized products will thrive.
Turning customer trust into customer experience
That noted, banks possess one advantage in the face of outside pressures: Trust. Because legacy financial services providers have earned trust over time, they can leverage it to build offerings that use existing information to personalize.
And to revolutionize banking through more contextual service, financial institutions must provide customers a new kind of value. Lifestyle banking, professional intelligence, smart offers and next-best-action guidance on financial well-being all contribute to the larger picture.
As fintech and open banking encroach on the financial services space, banks face an imperative to offer more consumer-centric services. To seize this opportunity, financial providers should use fintech to fill technological gaps they cannot meet alone. Fintech companies boast agility and intellectual property big banks lack; banks must embrace non-traditional approaches and high-velocity processes fintech partnerships demand if they want to see a difference.
Many big financial services companies have already joined the race as mentioned above—and fintech-bank unions can benefit both sides. But to overcome the big tech threat, financial institutions and fintechs must maximize those partnerships.
When banks and fintechs team up
Collaboration between fintech and legacy banks could thwart any attempt by big tech to overtake the financial services space. Envision a bank with better customer service than Amazon and better personalization than Netflix. Together, fintech and banks can realize this ambitious vision.
Predictive, personalized products and services represent the heart of elevated banking experiences. For example, financial institutions can help consumers spot opportunities to save money or reward them with perks such as exclusive dining experiences. Or, imagine non-traditional services that notify customers of delayed commutes (even to the bank). Technology that reads and acts on data in real-time can accomplish all that and more.
But is this just a nice-to-ponder vision? JPMorgan Chase has plowed massive resources into research and development; last year, its fintech investment hit $10.8 billion — about 10 percent of the company’s revenue. You’ll find that kind of ratio more often in tech than banking, with 12.6 percent of Amazon’s 2017 budget going to R&D.
Technological innovation marks the banking battleground of the present and future. Consumers want new and better services—the question is, will banks respond? If so, they need to overcome the challenges that legacy systems pose and embrace smarter technology.
Daunting as it may seem, this doesn't require a full-scale infrastructure revamp. Rather it demands that banks carefully consider their fintech partnerships. Solutions that plug directly into your organization’s existing infrastructure ensure a quicker time to market, allow you to reap the rewards sooner rather than later.
Meanwhile, listen to your customers. Watching how much the companies around them delight them digitally. To be sure, it’s easy to feel overwhelmed by tech’s tectonic shift. But for banks that act—and arrive first at the consumer’s digital doorstep—the profit potential is downright earthshaking.
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Rui Nunes is the marketing director at Flybits.