Fintech: Banking Disruptor or Distractor?

While many believe fintech start-ups and large technology firms are the source of disruption in the banking industry, some feel these new players are more of a distraction.

The banking industry continues to evolve, but the terminology used to describe the developments can sometimes be numbing.  Some of the financial services buzzwords that you have probably heard a lot in the past year include digitization, blockchain, platform, transformation, augmented, crypto currency, biometrics, omnichannel and most people’s favorite… disruption.

More than just buzzwords, many of these terms represent what many traditional bankers believe is changing the ecosystem of an entire industry. ‘Challenger Banks’, Fintech Startups and even large technology giants are positioning themselves to be at the center of this change, many times leveraging these terms as part of their mission statements.

But, if you just put down your virtual reality glasses and try to find the underlying market mechanism behind most of this new fintech terminology avalanche, the result is very profound. The “disruption” is often more of a “distraction”, with this distraction working to the advantage of the new market entrants.

The noise is often much louder than the reality in the marketplace. And, in the midst of this distraction, many banks are forgetting their marketplace advantages and are blaming their inactivity on fintechs. Instead of embracing the next shiny object, they resemble a ‘deer in the headlights.’

So, what are the five biggest distractions created in the new financial marketplace?

Distraction #1: It’s All About the Technology

At the end of the day, it is not about the technology. It is about what the technology creates. Bankers do not need to deeply understand the underlying technology to realize that the original rules of business remain the same. The banking industry needs creative and talented people who can synchronize new technology with banking’s business goals; because the new digital consumer needs faster, and more convenient mobile and online services. The majority of new business is not generated by physical interaction any more. Instead of bringing customers to the physical touch points, banking needs to merge a wide variety of financial and non-financial ecosystems to a secured and easy to use electronic marketplace on behalf of their current (and future) customer base. An enhanced consumer experience is the alpha and omega of new age banking … not the technology. Bankers need to do what they do best, with new tools and borderless opportunities, and without distractions.

Distraction #2: Consumers are Flocking to Fintechs

The fintech marketplace is full of monoliners, who have invented one or two savvy digital solutions to ease a pain, generated by the lack of modern user friendly financial services. But the majority lack a full range of financial services and even more lack scale. Many are losing market advantage because they do not have the capital or marketing savvy to achieve a vast customer base or they cannot keep the promises they made due to overly aggressive business plans.

Pascal Bouvier authored a great article entitled, “Ten Reasons Fintech Start-Ups Fail” that included issues around regulation, compliance, difficulty of competition and the difficulty of starting a new business. The German digital-first bank, Number26, had to start closing their customers’ accounts when the economics of their ‘free’ services did not work out as planned. And the fallout of fintech failures may just be beginning.

Distraction #3: Traditional Banks Can’t React Quickly

There is no arguing that traditional banks have old, slow and incompatible legacy systems and overly complicated manual and paper-based processes. The existing system has been up and running for over three decades in many cases and it is impossible to shut things down and start over. For most institutions, this is just an excuse for doing nothing. The problem is often not the investment in new technology, the vision of what’s needed, or even the people. Instead of building poor customer interfaces on a bad legacy system, most organizations know they would benefit from a new back office.

Could the challenge be the final impact of a complete digital transformation? Every expert knows that a digital bank can be created by less than a few hundred people … in one single office. And if done well, the reduction in human resources and offices would go beyond 50%. Which legacy bank CEO would sign off a headcount and asset cut back like this? There is still an advantage of the traditional banks.

They have money for development and a very slow to move customer base. The lethargy of the majority of current customers is well known. So why not build a new system while the old system is still running (somewhat smoothly)? A new digital banking platform with high end features and more business opportunities. Instead of being distracted by what currently exists, start building the new digital bank today. There’s still time..

Distraction #4: Digital Banking Must be 100% ‘New’

Just like Woodstock and the sexual revolution, when going against the norms symbolized freedom, new digital banks are keen to deny anything and everything that may remind consumers of ‘old school banking’. Much like the Woodstock era, digital startups are even creating unrecognizable names like the hippies did before with their children.

Fintech startups greatest disadvantage in the marketplace is the lack of a trusted bank image and existing customer base. Statistics have proven that the biggest traditional banks, with a good mobile banking platform, have the highest customer satisfaction index. While fintech start-ups may need to differentiate themselves with catchy names like Hello, Moven, Simple, Frank, Mondo, Atom, Tandem, Fidor, etc., traditional banks should leverage their existing brand and reputation.

Why rebrand a digital version of an established bank when you can simply rebrand the experience (like TD Bank has done in their partnership with Moven)? Trying to start from scratch is a distraction for a traditional bank. Use the foundation in place and improve the digital experience.

Distraction #5: Let’s go Social!

While social networks opened up the world of remote connections and interactions; it does not mean that consumers want to be ‘friends’ with their bank or use social networks to facilitate banking transactions. While many fintech startups are using social media to discuss their ‘vision of the future’ or even crowd fund their business, traditional banks can build relationships through direct communications … because they already have a customer base.

While social media is a powerful tool for handling service issues or reinforcing marketing and banding initiatives, this channel can also be a huge distraction. In the order of prioritization social media is one of the best examples of a distraction being mistaken for an opportunity in disruption.

Rather than having a goal of “creating disruption”, traditional bankers should build on the foundation of current banking solutions leveraging new technologies and potential fintech partnership opportunities. The advantages of the digital age will be the delivery of banking products and services at a lower cost to the bank and consumer with an easier, simpler and more contextual design. The new digital bank may include non-financial services to satisfy the needs of the digital consumer, but it will only be created by those banking organizations that are not distracted by over exaggerated fintech disruption.

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