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FINTECHS VS TRADITIONAL BANKS: WHO’S WINNING THE RACE?

By: Frans Labuschagne, UK & Ireland country manager at Entersekt

 

The transformation in the financial services sector has seen many people becoming a lot more reliant on digital tools to perform everything from routine to complex financial transactions. Brick and mortar establishments and personal bankers were once the go-to to guide consumers through opening a new account or applying for a loan; now, we have at our disposal a long list of self-help options: apps and portals, ATMs and kiosks, chatbots, and video and telephone banking. As the ways consumers interface with banks evolve, so too do the challenges banks face to remain competitive and customer focused.

 

The digital transformation drive

With digital transformation becoming a strategic focus area for banks, many experts now view it as critical for future success. However, according to Chris Skinner, only a handful of banks are “doing digital” properly. This is because “having a mobile app doesn’t mean you’ve gone digital.” Fintechs understand this and go above and beyond in the fast-paced digital innovation sphere, merging online experiences into seamless events and meeting the customer where they are.

 

Making it personal

Then there’s the ever-increasing demand for personalisation, which has become a buzzword across industries; a strategy recommended to “enrich customer experience and drive revenue”, as a 2019 Gartner report phrases it. Companies that heed this advice seem to reap rewards – an Extractable study found that 93% of companies report having more success in converting prospects into customers when they personalise their marketing. Banks, however, are lagging behind in this respect. 94% of banks surveyed in the recent Digital Banking Report say that they can currently only deliver basic levels or no personalisation at all.

 

Security matters

At the same time, banks cannot ignore the need to prioritise security, in terms of their own systems as well as their customers’ data. This can be complicated by compliance requirements that often lead to extended timelines, legacy systems that can hinder innovation, and the changing demands of consumers. When banks see both security and regulations as constraints, it tends to hold them back from moving forward with more innovative offerings. This stumbling block is where the traditional bank can be surpassed by quick-moving fintechs and challenger banks.

So, why have fintechs been able to outstrip traditional banks when it comes to offering innovative banking services?

 

The fintech edge

Fintechs are notoriously consumer-centric and know how to leverage the customer relationship. Many use data to give them the edge over competitors: they know that every time a consumer touches a computer, searches for a store or product on their mobile device, or calls a customer service department, they leave digital breadcrumbs. This data-rich trail is a path to a more intimate understanding of that consumer and what it takes to provide them with more relevant services and offerings — the essence of contextual commerce.

These smart organisations recognise the possibilities that this open up. Instead of having a handful of interactions with consumers each month, for example, they can initiate several personalised, highly relevant interactions every day. Fintechs are experts at creating flexible, intuitive customer journeys across channels to enable a richer and more interactive experience. It also helps that they aren’t held back by the cumbersome legacy technology and myriad of complex regulations that FIs often find themselves flummoxed by.

 

The banking edge

Conversely, banks have an inherent advantage in place when seeking to bring new features and services to clients: trust. Visible indications of security measures combined with a sense of control over security can make customers feel safer and more comfortable in their digital interactions. Add to this consistent experience across digital channels and a personalised approach to services and offers, and banks will be able to capture great returns on their investment in trust.

Banks and fintechs can learn from each other when it comes to striking this balance between trust combined with leading edge security and personalisation combined with a convenient digital experience.

 

Working together

Financial institutions are becoming more comfortable partnering with fintech firms, which allows them to innovate faster. Banks feel the pressure – there are many more players on the field now, and to succeed, traditional FIs need to bring their A-game. One of the best ways to do that is to pair up with a nimble technology partner.

The synergy of strengths is the ultimate goal in any partnership. In the case of banks and fintechs, each brings something incredibly valuable to the party: Fintechs bring an innovation mindset, agility, a consumer-centric perspective and an infrastructure built for digital. Banks and other established FIs bring brand recognition and consumer trust, capital, expertise negotiating the ever-changing regulatory landscape, and established distribution networks. When combined correctly, these are the magic ingredients needed to scale up.

In addition, partnering with fintechs also allows the full potential of open banking to be realised. As more third-party services rely more heavily on open banking APIs, customers will naturally migrate to the banks that have the fastest and most featureful services. It all comes down to where you want to be on the playing field.

 

Moving forward

FIs will rely increasingly on modern data-processing techniques to enable real-time empowerment – or risk falling behind. Promisingly, it seems that FIs are starting to take note.

One of the major challenges for banks (which became all the more apparent as COVID-19 restrictive measures were rolled-out around the world) is the need to find a way to cater for their diverse range of customers; they cannot simply pander to a specific demographic. In order to evolve with changing customer needs and behaviors, they’ll need to create an offering that is intuitive and manageable for both digital natives and novices alike.

 

Fintechs and the future of banking

There are changes big and basic coming in the era of secured multi-channel banking. The next few years could completely change how consumers interact with their banks. They can really extend their position of trust to be at the centre of a third-party loyalty ecosystem as well. This might involve being able to place an order at Starbucks or another retailer directly from a banking app instead of having to use a phone. Or creating a space in which customers can log in with their mobile banking app in stores and collect digital offers or coupons. The options are many — and the banks’ unique set of channels to operate over, and their relationship of trust with consumers, give them an exceptional leg-up in the race if properly leveraged.

The bank’s omnichannel capabilities are a strong competitive advantage if they are used properly because they give consumers multiple ways to engage with a bank, whereas pure tech platforms can’t offer all those channels. It’s a core advantage often overlooked and underutilised.

So, the question becomes, not who is winning the race, but how can traditional banks and fintechs work together to change the face of modern banking for the better?

 

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Banking

WHAT STRATEGIES CAN BANKS USE TO COMPETE WITH NEW DIGITAL PLAYERS?

Banks are experiencing a gradual loss of their monopoly, due to the arrival of new players born from digital transformation. To face these new challenges, banks need to develop new strategies in order to compete with this developing market, says Professor Catherine Karyotis from NEOMA Business School.

The development of technology and the subsequent introduction of open banking systems, payment automation and instant payments has meant that there have been many upheavals within the banking community that require drastic transformations.

One of the biggest competitors for traditional banks are Neobanks – financial technology firms that offer internet-only services and lack physical branches. Neobanks appeal to consumers who don’t mind doing most of their money management through a mobile app.

But how can traditional banks compete with these direct banks that operate exclusively online?

“In order to contend with these new platforms, traditional banks must adapt in order to stand out and capitalize on the trusted relationships that have been established between them and their customers,” says Professor Karyotis.

Therefore, banks must focus more on their customers to continue offering an added value to them in order to have the edge on these digital players. It is about understanding consumers and thinking about their behaviour in order to respond to them in the best way possible.

“A new type of customer relationship needs to be established and the sources of value creation need to be revised to improve customer experience. To be customer-centric is to put the customer, and not the product offer, at the center of the company’s concerns.” says Professor Karyotis.

The traditional banks appeal is disappearing. They need to reinvent themselves and make innovations to their economic models and/or partnerships with the new entrants to emphasize their knowledge and skills that are built on trust. And to accomplish this, their employees must capitalize on their social skills too.

 

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Banking

BANKS SHOULD NOT TAKE DATA PRIVACY FOR GRANTED IN THEIR BREXIT TRANSITION PLANS

Rich Vibert, CEO and Co-founder, Metomic

 

UK banks are not as prepared as they should be for Brexit. This is unsurprising given the political wrangling, the challenges posed by COVID-19 and the daunting prospect of a double-dip recession. However, with less than 3 months to go, banks and financial services businesses need to get a firm grip on the impact Brexit will have on their customer’s data privacy, and fast.

We need to talk about data privacy in finance

Before diving into the nuances of post-Brexit data protection, the challenges banks currently face when it comes to data privacy must be addressed. A glaring 62 percent of the data breached last year came from the financial services sector, according to Bitglass. Even more worrying, an Accenture report from March revealed that one-third of financial organisations lacked a clear plan or resources to address privacy risks related to customer data. This is a worrying starting point and Brexit will only bring more challenges as data protection regulation will evolve.

What’s behind a post-Brexit data protection law

Data protection in the UK is currently subject to the EU’s General Data Protection Regulation (GDPR)But once the Brexit transition period ends, organisations in Britain will fall under a UK data protection law that is still to be announced. Thankfully, there is a large chance that the UK will incorporate GDPR principles into its own law, but uncertainty and confusion still remains. And should new local measures be implemented, banks will need to move quickly to become compliant.

However, even with a GDPR-based compliance framework in place, challenges will remain. One of these is ensuring banks are able  to transfer data to other European countries; this is important as a quarter of the financial services sector’s annual revenue currently comes from business related to the EU. Financial organisations must also consider the potential consequences of a no-deal Brexit. The UK government has declared it is willing to reach an adequacy agreement, maintaining a free flow of data between countries. However, given the current stalemate, financial institutions should not take that as a given. In a worst case scenario, a no-deal could lead to UK businesses sending data to the EU in 2021 and simply not getting it back. This is not acceptable for a sector that depends on constant transfers of sensitive information such as credit scores. Unpicking the mess will require the investment of time and funds that many businesses can ill-afford.

 

Customer data at risk, reputation at risk

UK citizens are already wary of the way their data is being treated. The government’s acknowledgment that the UK track and trace system wasn’t GDPR compliant and the privacy concerns around the COVID contact tracing app are just a few of examples that have damaged citizen trust. As such, they need to be reassured that post-Brexit their data will be treated in the right way, not only by the government but by financial institutions. Especially as data breaches are proven to compromise corporate reputation; 49% of customers would not sign up to a service that has suffered a data breach, according to Ping Identity. This has to be addressed if banks are going to survive and ensure that that customer trust is maintained.

 

A privacy-first mindset for banks

While the future of data regulation in this country remains in flux, we know that privacy and data protection is top of mind for consumers. To maintain the trust and loyalty of their customers, financial services organisations must think ahead and be prepared for any outcome. Fundamentally, this is more about a change of mindset than it is about exorbitant costs. Your ultimate goal should be to deploy a privacy-first approach across the business. This means putting the customer at the heart of your strategy and investing in technology that will help you have clear and continuous visibility over what is happening to all customer data – from transactions to investments.

Fortunately, simple mechanisms can be put in place to help businesses achieve this. For example, there are solutions that allow businesses to embed data protection rules and protect sensitive data within their IT infrastructure. This puts compliance on auto-pilot, minimising risk. These are the types of investment that banks should be making now, as they will save them thousands of hours per year of auditing and developing data management processes.

Data privacy can no longer be treated as an afterthought. The financial services firms that embrace a privacy-first mindset starting now will be better prepared to protect their customers’ data, and therefore preserve trust and their own reputations, regardless of the Brexit outcome.

 

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