- Fintechs set new UX standards, thus raising customer expectations to new higher levels
- Banks choosing to cooperate (following different models) should adapt their IT services to this new competition
- Fintechs are forcing banks to engage faster and broader into digital transformation.
With soaring annual investments (multiplied by three in two years, from 3 billion dollars in 2013 to 10 billion dollars in 2015),record valuations in excess of $1 billion (square $6 billion) and an ever rising number of customers, fintechs have now become credible candidates to take over the battle of financial customer relationship. In order to survive, traditional banks, like other industries, are forced by these new comers to invent new business models, adapt the way they engage with consumers, upgrade their operating model, and foster an entrepreneurial culture internally.² How can banks use the emergence of UX-centered competitors to accelerate their digital transformation and address new market opportunities?
Fintechs set new UX standards, thus raising customer expectations
“Your competitor is your customer’s last best customer experience” stated Jeremy Balkin (Head of Innovation HSBC USA). Fintechs are setting new user experience standards, aligning their offer to standards set by Uber, Airbnb, or Spotify: fast access to the service, seamless experience, and continuous improvement of the service in order to adapt to customer needs.
By increasingly gaining market shares, fintechs are forcing incumbents to reshape all parts of their customer relationship. For instance, banks are now trying to automate account openings, analysis, and KYCs (customer identity verification mechanism), as already done by neo-bank N26, where an account can be opened by signing directly into the application and proceeding to identity verification through a short video chat. Fintechs like Yodlee, an account aggregation service and Yodlee MoneyCenter, its online personal finance platform, also lead innovation in other banking segments such as automated advisory and even provide new services like account aggregation. Yomoni is an example of a fully digital asset management service powered by a robo advisor. Banks are starting to follow the fintech path catching up on digital transformation on various parts of banking services such as BNP Paribas Wealth Management in Luxembourg with its “Factory” (a business incubator), bringing private banking into the digital era through a chat service with a personal advisor or “Next Gen Club” a social network dedicated to young heirs of fortunate families.
#LFTCNYC June 27, 28 Banks and FinTechs—Friends or Foes—How to make coopetition work?: https://youtu.be/OkRQjw3b7qs
Cooperating with fintechs is a way for banks to accelerate their digital transformation
The Basel Committee on Banking Supervision considers the cooperation between fintechs and banks as the most likely scenario in the future of financial services. Such cooperation comes under various guises: simple investment or acquisitions of a fintech in order to reduce time to market of new services; coalitions between banks or with fintechs; or collaborations, such as Royal Bank of Scotland and Ezbob creating Esme Loans, enabled by APIs.
Cooperation with fintechs requires banks to transform their operating model towards a bank-as-a-platform model: an operational model that enables a bank to make a part of its IT system (e.g., payment process, account management, cash management services, etc.) accessible and usable by in-house or external developers. within a secure and efficient environment.
This model generates internal synergies with the reuse of application services and creates value beyond the bank’s borders. APIs are an essential tool for banks engaging into open banking model to take advantage of fintech ingenuity, and they can also choose to monetize their APIs and thus generate new sources of revenue. BBVA launched an Open Banking program commercializing eight APIs (payments, accounts, etc.) targeting external developers. DBS Bank, Southeast Asia’s largest bank, recently released a platform with over 150 APIs allowing developers to initiate account opening action or debit card application.
Beyond IT evolution, fintechs are forcing banks to engage in a faster and broader digital transformation
The rise of APIs raises concerns about security and privacy. Banks have to consider the stakes of cybersecurity, as three customers out of four are ready to change banks in the event of a cyberattack, while only 30% of banks have already implemented a satisfying security policy. Banks should follow the initiatives in cognitive compliance being adopted by neobanks such as N26, which is already implementing automated security.
Broader digital transformation areas are to be tackled. Banks should consider new governance models and their corporate culture must tend toward greater agility. In 2015, ING initiated an organizational transformation with the ambition to become the Spotify of the banking industry, implementing feature teams in a large part of the company. Digital transformation requires new skills brought by rare and coveted profiles attracted by the start-up spirit. Banks should adapt their employer promise and engage in this talent war, promoting innovation, well-being at work, and autonomy. Société Générale recently launched the “Internal Startup Call,”an international intrapreneurship program to adapt HR processes to digital transformation and foster mobility within the company to help start-up projects flourish inside Société Générale.
Banks have been forced by fintechs to engage and adopt digital transformation and so far they’ve always managed to catch up. Yet the current financial services ecosystem is taking a brand new shape and the gap to fill appears clearly larger this time.