Since the 2008 financial crisis, the banking landscape has undergone a seismic shift to a new age of innovation and digital transformation, marked by the advent of FinTechs companies. By observing and often experiencing first-hand what banks offer – or do not offer – these new entrants have targeted what consumers perceive as the failings of banks to capture significant market shares.
6% of global consumers have shifted their primary banking relationship from traditional banks to newer companies with better technologies and simpler products. This percentage is on track for continued growth. In 2015, one in seven digitally active consumers was using FinTech. In just two years, that number has risen to one in three. The banking landscape is fast moving from an era in which a handful of big banks dominated global markets. This is a significant shift in the banking landscape: one that’s driven by radical changes in consumer preferences and underpinned in part by a generational gap.
Image Credit: Fineas Anton
Consumer’s increasingly demand - and expect - enhanced user experience, personalised products, and cross-platform personal financial management, segments that FinTechs have specialised and excelled in. Moreover, at every stage, the experience design and customer journey have been guided by customer needs and expectations.
A Customer-centric approach, from product design to delivery channels
It’s hardly a surprise that 75% of bankers believe FinTech’s most significant impact will be an increasingly customer-centric approach. By seeing personal finance through the customer’s perspective, FinTechs have driven a radical simplification of the customer journey, simpler products that are easier to understand, rationalised product portfolios and more transparent pricing. FinTechs create products customers want to use and focus on seamless UX through channels customers are most comfortable with. They’ve proven so appealing to consumers that for many, their main marketing growth channel has been through word of mouth referrals.
FinTech players have consistently prioritised user-friendly design, with an emphasis on simplicity and convenience of interactions, delivering end to end engagement across fully-integrated channels. They’ve also focused on 24/7 responsiveness to consumer requests, and a proactive approach to continual engagement with customers, such as through non-traditional channels like social media.
This approach is certainly paying off: digital newcomers outperform traditional banks in customer service, customer loyalty, and referrals. Of the consumers who prefer FinTech providers to traditional banking, 21% do so because of better online experience and functionality, another 21% for the ease of setting up an account, and a further 16% for better service quality.Image credit: Joshua Rawson-Harris
This customer centricity is something banks must work to embed in their offering, from product designs to delivery channels.
Personalisation as product differentiation
As part of their focus on customer experience and responsive to consumer demands, FinTechs have long used integrations to personalise products and experiences.
While in the past, customers used one bank for all products, from loans to cards to wealth management, consumers now know they can shop around online to find the best offer or deal - which means bank can no longer bank on customer loyalty to cross-sell products. Today’s customers expect personalised benefits, tailored to their life stage, financial goals and, personal needs. In fact, 63% of consumers believe their banks should be delivering personalised product and services.
However, the gap between customer expectation and perception of banks remains wide, with customers perceiving traditional banks as all offering the same, undifferentiated products and services. Banks will need to adopt personalisation not only as a primary mechanism for increasing customer acquisition, engagement, loyalty, and retention but as an opportunity to differentiate themselves.
Value chain specialisation and niche segmentation
FinTechs have also leapfrogged banks by taking a highly targeted approach, which allows them to to excel in a specific niche in the value chain while simultaneously maintaining a broad portfolio through third party collaboration. FinTechs have specialised in serving narrower segments of the market, typically demographics neglected or under optimised by banks, such as consumers with poor credit who are often unable to access traditional banking products.
By developing highly targeted - and highly efficient - solutions, FinTechs have managed to secure segments neglected by traditional banks in terms of offerings, such as p2p solutions, instantaneous payments, and highly personalised personal financial management tools. Banks must similarly expand services in under-optimized market broaden core banking value proposition into new areas beyond traditional product and transaction sets, and create special offerings for narrowly defined customer segments.
Image credit: Nong Vang
Integration: the move to APIs and open banking ecosystems
Perhaps the most important banks can learn from FinTechs is the adoption of APIs and a move towards an open banking ecosystem. Anticipating industry shifts based on consumer trends, FinTechs have been built with an open banking model in mind, with legacy-free, modular architectures, and open APIs that enable personalised experiences and an ecosystem of third-party products. With new products that enable developers to customise free, open APIs to create new products, third-party powered ecosystems are cheaper, more widely adopted, and increasingly easily integrated for a seamless, end-to-end user experience. The use of APIs is integral to the future of banking and strongly anticipated by consumers, 67% of whom willing to share more data with banks in return for customised benefits.
Not only is this shift is driven by demand, regulations are fast making it a necessity. The rollout of PSD2 in Europe and initiatives across Asia means Open banking has gained traction globally, and banks are being forced to turn to an API based architecture - whether they like it or not.
Open banking is certainly projected to be beneficial for banks, with 80% of bankers recognising the opportunity to enable the creation of new propositions, business models, and better customer experiences. Through the exchange of data, banks can tailor their service offering for the needs of individual customers, offer existing customers new services, and create more options through integrations, such as to personal finance apps or enterprise software solutions.
Third-party integrations also enable banks to amplify their reach and distribution reach by partnering with organisations that have a loyal customer base.
The benefits of open, API based architectures for banks are evident, which makes it no surprise that even ahead of regulatory compulsion, the number of banking APIs mushroomed from barely double digits a decade ago to over 1,500 in 2017.