The banking sector has had its fair share of controversies and scandals. Bill Gates made the remark over 25 years ago that retail banks are “dinosaurs”. That statement has never been more clear than today in the age of financial technology, AKA “fintech”.
Banking in the Age of Fintech
While traditional banks have adopted technologies such as mobile banking, e-statements and other things, consumer expectations are changing and so is the market. It is time to highlight the financial marketing distributors and look at ways in which fintechs have managed to evolve the banking practice. The question is, will fintechs kill or reinvent traditional banks?
In the past, traditional banks controlled the customer experience. Now, customers are creating their own experiences. They want digital, open, fast and inexpensive. The average bank consumer relationship is 17 years in the United States, but millennials are turning years into days. Instead of sticking with a bank for the long haul, they move around looking for better offers and experiences… within 90 days! Furthermore, millennials trust algorithms, not humans! Take Kabbage for example, a small fintech that allows small businesses to get up to $250,000 in loans in minutes! No more spending time at the bank, signing paperwork, talking to a loan officer, etc.
Fintechs aren’t just changing the banking industry in the United States, but all around the world. Some countries, like Africa and Latin America, are seeing consumers skip traditional banking all together and going straight to smartphones. These countries tend to be poorer, making their needs unattractive to traditional banks. Some bankers argue that the lower 60-70% of these types of consumers are not profitable, so it’s not worth their time or money to pursue them.
The role of technology tends to be overestimated with a lot of talk about buzzwords like Artificial Intelligence, Blockchain, Augmented Reality, etc. In many cases, it’s the business model innovation that can be more disruptive than the existing technology. Take Uber for example – the app has GPS location, automatic credit card payment and a responsive website… standard technology features for many years. But, Uber took the existing technology to the next level with their business model. Uber relies on geolocation, push notifications, SMS and payment integration. You pay via debit or credit card which is completed prior creating an account on the app. “Uber works because of its peer-to-peer business model running on a digital platform. This means that Uber is connecting people who offer a service with people who have a need.” Source
If you don’t like change, you better get used to being obsolete. Banks need to evolve from culture to strategy, execution and speed and to be collaborative overall. Are you in the financial/banking industry and looking for more insight? Send us an email, we’d be happy to discuss opportunities! Email us anytime.