There continues to be talk swirling around the financial press about how ‘The Fintech Revolution’ is the prelude to the death of traditional financial institutions. Certainly, it’s a lively topic and is definitely click bait when you add words like ‘Millennials’, ‘Gen Z’, ‘mobile banking’ and ‘AI’ (artificial intelligence).
But the reality is, great banks and credit unions understand that all these new challenges aren’t as much threats as they are opportunities. These financial institutions also realize that it isn’t the size of the dog in the fight, it’s the size of the fight in the dog – you don’t have to be a big player to get on the financial technology bandwagon.
As a matter of fact, smaller players can be more nimble in adopting some of the new technology, because their infrastructure is smaller and they can implement new protocols much quicker than big institutions. Plus, players from regional banks to local credit unions can work with core providers who can package a collection of financial technology products that best serve them and their customers. Many times, bigger players build out proprietary systems that lack the dynamic, curated assets of core providers.
The 5 Fintech Benefits for Banking
The point is, there is a huge amount of benefit that fintech firms can provide financial institutions. This isn’t a zero-sum game, where one has to win and the other has to lose.
By combining the stability, product variety, customer knowledge and financial strength of traditional banks and credit unions with the data enrichment, user experience and modern platforms that quality fintech firms can provide, both can build an amazingly rewarding experience for each other and their customers.
Here are the top 5 reasons the combination of fintech solutions and legacy banking organizations bring a winning synergy for the future:
- Fintech improves the health of traditional financial institutions by enhancing performance and improving profitability. When banks and credit unions see fintech firms as partners in this journey, rather than firms selling products, the opportunities begin to expand.
- Fintech solutions provide a way for legacy financial institutions to improve customer retention and preference. Data enrichment is an extremely powerful tool that quality fintech firms bring to the game.
- Fintech firms provide an opportunity to enhance loan portfolio diversification. When you have the ability to become more granular with each customer, you are more likely to find (and offer) consumers the exact products they need, when they need them.
- Fintech partnerships can help solve industry-specific points of pain, like securing credit card processing, transferring money, and processing loans quickly. With a strong fintech partnership, traditional financial organizations benefit from the leverage of a state of the art, secure network that can manage time-consuming and lengthy tasks quickly and effortlessly.
- Fintech data can provide financial institutions a keener insight into what their customers are doing with their money. This again speaks to the power of data enrichment fintech partnerships can provide. Further, the power of the cloud that quality fintech firms have tapped is another tool in delivering product offers and services specifically tailored to individual customers in real time.
Fintech: Friend or Foe?
Fintech is not the enemy of traditional financial services institutions. On the contrary. fintech firms that truly want to build themselves into the fabric of the financial space need to become facilitators, not competitors. As tech partners, not challengers.
Both traditional banks and credit unions as well as the new fintech providers are committed to delivering the next generation banking experience to the consumer, so those partnerships can build an even better experience for the consumer than either organization can provide on their own. This isn’t about stealing market share … it’s about building a new paradigm for everyone.
The Beginning of a Massive Digital Transformation Journey
We are currently in the earlier stages, when new technologies are replacing older ones, but the fundamental values of the institutions remain the same. For example, when radio arrived, it was predicted that the death of newspapers was only a matter of time. Then it was radio’s turn when television arrived. Then it was broadcast television when cable arrived.
These technologies were absorbed, not displaced. And banking + fintech is no different. For example, a couple years ago, the global management consulting firm Bain & Co released a study on customer loyalty in retail banking. One interesting statistic was between 2012 and 2105 customers using banks’ apps grew from 32% to 52%. But in 2016, that number only increased to 55%.
Often, people rush to adopt technologies, then figure out the value-added, and then decide how to incorporate the technology into their lifestyle. They don’t necessarily swap one way of doing something for another entirely.
The Millennial Effect
According to a survey from JD Power, the much coveted, digital-native Millennial segment still values their local bank branch – 71% used a branch, averaging 11 visits per year. That’s nearly identical to older generations’ use. And 78% of new accounts are still opened in a branch (although we can debate if they have a real choice given the friction in most new account opening processes).
Another key facet the survey brings out is, Millennials were significantly happier using both branches and digital account access compared to using only branches or only digital.
The Winning Bank + Fintech Formula
The real goal for banks and credit unions is to find the right mix of fintech solutions and traditional banking. Play to the tried and true strengths of each type of organization while also opening up to new opportunities to access tools that will empower consumers and reinvigorate marketing opportunities.
So, the next time you read a hand-wringing article about how fintech is going to make retention and acquisition more difficult, or cross-selling more challenging, keep things in perspective. Just remember that there are number of quality fintech firms out there that can turn your concerns into opportunities … growing your revenues, building your customer base and helping you succeed for decades to come.