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Lost in Translation: Why Banks Must Learn the Language of their Customers

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Back in 2017, the future of the fintech sector and its potential felt truly limitless. Bold claims were bandied about including the theory that the movement would soon supersede the traditional banking sector in terms of popularity. Nowadays, things don’t look as cut and dry. Personally, I’m still a supporter of the fintech sector and feel that there is still vast potential for it to create real change for businesses and consumers, but I’ll also admit that a lot of those early proclamations have now been shown to be quite wide of the mark.

Ultimately, the staying power of the banks was much greater than many people expected. Despite the devastation of the financial crash and more recently with the Covid-19 pandemic, the broader banking sector remains strong and where people still feel most comfortable and trusting when it comes to depositing, sending, and saving money. This argument extends to SME customers, who still largely want to use traditional banking portals to conduct business.

 

ARE BANKS STILL THE BEST FOR BUSINESSES?

The recent failure of the UK’s Incentivized Switching Scheme perhaps best highlights the idea that business customers still prefer traditional banking institutions. Some years on from its launch, it’s now safe to say the scheme has significantly failed to reach its initial targets, despite spending close to £220m in sweeteners that looked to encourage SMEs to transfer business accounts over from traditional, legacy banking companies and into the hands of new and emerging challenger banks [1].

Similarly, despite receiving significant capital under the Banking Competition Remedies fund, challenger banks have been unable to capture any significant market share within the world of SME customers. In fact, between 2018 and 2020, the number of people using a ‘Big Four’ current account only decreased from 94% to 90% [2]. Still, over this period overall adoption rates of challenger bank and fintech solutions has risen, however, these services have often been used to supplement services already offered by larger companies.

 

STRIKING THE RIGHT BALANCE

The numbers are quite damning, but it’s too easy to write the fintech movement off as totally underwhelming. Undoubtedly, the sector has helped to expose several big issues within banking, which can’t be ignored for much longer. Most notably, the banking industry continues to lag behind in its marketing efforts. The fintech sector doesn’t struggle with this. In fact, while I wouldn’t go as far as to call the sector ‘style over substance’ it certainly has marketed the absolute most out of the limited value it can really offer.

So, we’re left with one industry, which customers clearly trust, and who are able to deliver genuine value-added services, and another, which customers are still unsure about, yet it   manages to market its services in ways that people find intriguing. Ultimately, it’s all a bit of a mess, and often distracts from some of the more pressing questions surrounding the broader financial market. Chief among them is the question of whether either sector is currently doing enough to help those using its services on a daily basis.

 

DON’T FIX WHAT’S NOT BROKEN

I won’t name names, but we’ve seen this phenomenon across banking players. Whether it’s abstract TV adverts that don’t relay actual customer benefits, or the industry’s long running resistance to fully embracing the digital sphere. Similarly, the fintech sector has similar issues, seemingly becoming obsessed with a new trend every year, whether that’s Buy Now, Pay Later or crypto. While these trends may look good on paper, they seldom serve to help solve the real economic issues of the day, namely cost of living increases, and rising interest rates.

The good news is that the respective strengths and weaknesses of the two industries complement each other quite well. If banks can learn to speak to customers in the ways that fintech companies do, then they will undoubtedly see renewed interest in their products and can deliver real value. Likewise, if fintech businesses can learn from the banks and begin to deliver services, which truly help customers in their daily lives, then they may soon start to see the robust product adoption rates first envisioned in 2017.

 

COLLABORATION IS KEY

I’m going to make a prediction that we currently stand at the precipice of a huge correction across both sectors. In my opinion, this culture shift will take funding capital away from projects peddling speculative, high-risk solutions, and instead move it towards more grounded and warranted financial services. As such, increased collaboration between fintech businesses and the traditional banking sector would now be beneficial for both parties, but most importantly, would invariably benefit customers and SME owners.

In this endeavor, there’s absolutely no doubt that brand is important. At BankiFi, we recently conducted internal research on the subject. The findings indicate that users place far more trust in third party apps, which are more closely aligned to a banks’ brand, or look like they were an extension of the bank rather than something separate. However, to make good on this demand, the banking sector must get infinitely better at marketing itself to customers, which is where the fintech industry can really help.

 

BUILDING A BETTER WORLD FOR SME CUSTOMERS

With the right approach, fintechs and banks can align their respective strong points to deliver services to customers that truly add value. In short, the time is now for both sectors to stop looking at each other as rivals, and instead begin to assess the significant synergies that can be manifested from a closer working relationship. Of course, it’s a change that’s going to take work and patience, but the goal is highly achievable and will benefit all involved parties, including personal and business banking customers.

Banking

Is traditional business banking the best option for SME finance squeezes?

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Airto Vienola, CEO, AREX Markets 

The pressures facing business and personal finances alike have been well documented.

Stories are now starting to emerge about how smaller enterprises around the UK – which make up well over 90% of the companies in the country – are coping with that mounting stress. The picture starting to emerge suggests, not well.

Personal borrowing is bridging gaps in business books

One survey released recently suggested that one in five of the country’s small businesses have taken out personal loans by the business owner to try to cover gaps in their incomes and profit margins. A further 43% said they were considering doing the same. This rush to secure additional funds by any means may be understandable for businesses feeling the pinch, but it’s neither sustainable nor savvy. Many of these enterprises are already burdened with additional debt from the Covid relief scheme, and given rising interest rates, soaring energy costs and rising cost of goods, taking on additional debt is not an attractive prospect. Add to that the fact that rates from traditional business banking providers are proving steep, smaller enterprises could be forgiven for looking to personal means to shore up the balance sheet. A recent study from members of the Federation of Small Businesses found that one in five small businesses are struggling to find business lending rates under 11%. To help these companies to survive, something clearly has to give.

Not all Alt-Fi options are equal

Alternative finance services have been proliferating in recent times, and yet almost half of small business operators have concerns about pursuing this option, despite actively seeking additional funding support. Clarity over terms and conditions is an often-cited reason for this reticence, which is only natural when undertaking proper due diligence on financial lending. This is a wise choice, especially as it has become so easy for business owners to quickly and simply access new services through embedded finance services, just a few clicks away on existing digital accounting and bookkeeping services. Many of these are still not clear about any detailed fine print, lengthy contract terms or potentially high fees, and yet these too can look like accessible and viable options to business owners facing mounting financial issues.So, it can be hard to pick the right provider without a lot of research. Those wary of the long tail of taking on debt should be particularly careful when it comes to business Buy Now Pay Later or BNPL offers, which are currently entering the UK market, though that isn’t to say that other alternative financing services won’t suit their specific needs whilst mitigating fears over risk.

A fresh perspective on an established technique

So, if debt should not be an option, and embedded finance can have downsides, where should SMEs turn if they don’t want to kick the can of cashflow problems just a few months down the road? One area to reevaluate, which has seen a tremendous shift given the fresh thinking from alternative finance is invoice financing or spot factoring. No longer the imbalanced option of last resort it was traditionally perceived to be, the option has become much fairer to the SME, in addition to providing a swifter and more flexible alternative. In years gone by, invoice financing was the purview of the banks, which led to low rates of return for businesses looking to unlock the value in their organisation, and often much better value flowing back instead to the lender taking on the risk. This is no longer the case. Likewise, invoice financing earned a bad reputation among some for tying businesses into lengthy contracts – another area which current services in the market have since addressed. Our service for example allows businesses the flexibility to access cash back on just a single invoice of their choosing – which could be the difference for struggling SMEs between dipping into loss or keeping the lights on.

One answer to the late payments problem?

Perhaps the most important area which services like invoice financing assist is overdue invoices – the bane of the British SME. Barclays claimed earlier this year that over a quarter of SMEs are finding late payments to be on the increase, and this was an already notorious issue for many business owners. Estimates show that SMEs on average have £6500 in unpaid invoices at any given time. Financing these invoices ensures that the cashflow of these strapped SMEs is healthier, gets the money back into the business without the concerns of lengthy payment terms or endless chasing, and certainly in our case, has no impact on the relationship with the other organisation. Our platform acts as a marketplace between SME and likely investors, with extensive insight provided to make sure that those investing in the invoice are matched to the right businesses. We take on the intermediate risk – removing any suggestion or potential concerns around unwanted debt collection, for additional business owner peace of mind.

While the pressures may be mounting on the SMEs around the country, one thing is clear. No business should rush into making long term financial decisions simply as the cashflow is drying up. Any savvy business would be well advised to make sure they understand the implications, short and long term, of any lending solution they look to employ. However, knowing that there are options and the business’ bottom line does not simply have to rely on traditional banking services, should provide business owners with a lot more options at their disposal to help them to face the coming months with greater cash liquidity confidence.

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Banking

BANKING FOR BETTER 

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By Alex Kwiatkowski, Director of Global Financial Services, SAS.

From shifting market dynamics and mounting geopolitical tensions, to skyrocketing cyber threats and a worsening climate crisis, the world faces risk and uncertainty on many fronts.
But how are these and other prevailing trends reshaping the financial services sector?
A volatile landscape  
Describing the past few years as ‘volatile’ could be seen as a slight understatement, akin to saying the Titanic had a minor mishap at sea or that Liz Truss’s economic policy was mildly unorthodox. From the COVID-19 pandemic, Russia’s despicable invasion of Ukraine and the increasingly intense impacts of climate change, the resilience of not only businesses but whole nations has been pushed to breaking point.
In many ways, the banking sector has proven remarkably resilient to such challenges and risks. In the face of prolonged disruption, profitability remained higher than many had anticipated. However, the deeper structural challenges, such as digitalisation, the emergence of fintech disruptors, the brouhaha over crypto, and the growing threats associated with cyber attacks, are continuing to gather force as we head into a new year.
A recent Economist Impact survey, sponsored by SAS, found that while banking leaders are conscious of the imminent risks and those on the horizon, many are generally optimistic about how their organisations could be reshaped over the next decade, and beyond. I believe this optimism is well-founded rather than misguided, although pragmatism is required.

Alex Kwiatkowski

Digital transformation

For some years leading up to the COVID-19 pandemic, banks had been wrestling with exactly when and how to digitally transform. Like so many other industries, the chief legacy of the pandemic was to force rapid and wholesale change on a sector not always eager to embrace new ways of operating.
Traditional banks are now on track to be digitally transformed by the end of this decade, with technologies such as cloud computing and AI becoming industry norms. When considering the next three to five years, 57% agreed that digital transformation is among their top strategic priority. Cybersecurity and data protection (55%) are not far behind.
This focus on digital transformation is understandable, given the opportunities it may bring. Respondents from the Asia-Pacific region were the most excited, with 64% selecting it as among the greatest opportunities for their organisation. This was much higher than their counterparts in North America (52%), Latin America (50%) and Europe (50%). In fact, the tech-savviness among Asian consumers has created an opportunity for banks to leap ahead in delivering innovations compared with other regions.
When asked about the role of advanced data analytics in a successful digital transformation, just under half (48%) of executives selected this as the most important digital capability that their organisation must harness. It was the clear overall favourite, followed by blockchain (35%), AI/machine learning (34%), IoT/5G (33%) and robotic process automation (29%).
However, the survey also revealed a number of hurdles that may prevent the full uptake of data analytics, such as the increased risk of cyber attacks and a reliance on legacy technology systems. In addition, functions and departments working in silos was viewed as a potentially significant barrier, with 48% noting this as a “significant barrier” to change.
Purpose-driven banking
Alongside this goal of digital transformation, a growing consensus has emerged among banking leaders that the wellbeing of customers, communities, employees and the environment ought to be at the forefront of strategy.
Termed ‘purpose-driven banking’, this shift often encompasses ESG-related activities as well as a broader commitment to customer relationships over profits.
Purpose-driven banking has broad support among the industry’s leaders, with 82% of executives agreeing that financial services organisations can pursue profit and a better society at the same time. That sentiment is even more common among C-level executives, with 91% in agreement.
Arguably one of the most interesting results of the survey is the fact that 76% of respondents believe that the banking sector has an obligation to engage with and address societal issues. An even larger portion (81%) said that their bank takes responsibility for the social impacts of its activities.
Interestingly, a clear majority felt that the financial services industry is behind other sectors in terms of progress on ESG commitments. About three-quarters (76%) of C-level respondents said this, compared with 61% of all other executives.
Establishing transparent and measurable ESG goals aligned with corporate strategy is one area where leaders feel behind, with just 38% feeling that their organisation had achieved this. Another important aspect of the purpose-driven mindset is recognising how banks are fundamentally linked to other stakeholders in society. When asked which were the “most important groups for financial services organisations to engage with in order to have the most positive impact”, the technology industry, investors and customers were the top three choices. They were followed by consumers and government or policymakers.
Growing pressure from customers, communities and other external stakeholders are likely to influence the extent to which the banking sector embraces ESG practices, however it’s clear that the banking sector looks set to transform over the next decade. And transform it must.

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