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Why banks must adapt to thrive in the fintech era
A PricewaterhouseCoopers (PwC) report from 2016, subtitled 'How fintech is shaping financial services', predicted that, within the next three to five years, total global investment in this market could exceed $150 billion. It also warned that more than 20 percent of existing financial services business is at risk to fintechs by 2020.
Rather than viewing this trend as a threat, banks should be focusing on what they can learn from it, especially in terms of customer experience.
A threat or an opportunity?
There's no doubt that the growth of fintechs is having a transformative effect on the financial services industry. In January 2017, the US Treasury's Office of the Comptroller of the Currency released its Semiannual Risk Perspective for Fall 2016. In the report, it said strategic risk for banks "remains high". One of the key reasons for this is the arrival of new competitors, specifically "out-of-market banks" and fintechs.
An October 2016 survey by venture capital firm Blumberg Capital claimed that three in five Americans felt their banks were failing to keep up with their needs. Seven in ten said new solutions like digital banking and online lending were making financial transactions easier than ever.
However, it's also important to remember that established financial institutions (FIs) have spent many years building up trust and consumer awareness. In this regard they have a big advantage over fintechs.
One of the big questions banks have to answer is whether they view the growth of fintechs as a threat or an opportunity. Are these new, innovative businesses simply another competitor or a potential partner? There could be some big benefits to be gained from taking the latter view. The fintech market is a hotbed of innovation and fresh thinking around financial services, which could be just what some FIs need to improve engagement with customers.
In its World Banking Report 2016, consulting firm Capgemini revealed that around two in three bank executives (65 percent) have come to view fintechs as partners.
All about experience
One of the big lessons that established FIs and banks can learn from the growth of fintechs is just how important it is to deliver the best possible customer experience.
The Capgemini research found that new providers are proving popular because they are seen as easy to use (82 percent), deliver a fast service (81 percent) and generally offer a positive experience (80 percent). Similarly, the PwC study found that three-quarters (75 percent) of financial services businesses thought the biggest consequence of fintech growth would be increased focus on the customer.
So it's clear that all financial institutions, regardless of their size or market share, must strive to improve their customer experience in order to succeed. Those efforts could take many forms, such as investing in the reinvention of ATMs and other touchpoints that your customers use every day, or providing new, time-saving solutions in the branch, as well as delivering seamless experiences across your digital and physical channels.
It's possible that the key to improving the consumer experience could be something as simple as taking a new approach to communicating with your customers, or showing that you are aware of their concerns.
One thing that's certain is that an openness to change and a willingness to adapt will prove crucial for FIs looking to thrive in an increasingly competitive industry.