“Coming together is a beginning, staying together is progress, and working together is success.” – Henry Ford
When it comes to financial services, today’s consumers expect everything on demand, accessible via mobile apps and simple to use. BAI Banking Outlook researchfound in early 2020 that the top priorities of financial services customers are 24/7 customer service, opening and closing accounts with ease, and clear and easy to use apps.
To meet these demands, leaders at traditional financial services organizations and fintech firms have found great success by collaborating to combinetheir respective strengths to bring innovative digital products to the marketplace. Traditional financial services organizations have always sought innovative new ways to meet the broader needs of their customer base. By collaborating with fintech firms who have created specialized platforms to meet specific needs in the marketplace, both organizations can magnify their individual impact.
Part of the reason collaboration works so well is that, according to BAI’s research on customer priorities, consumers prefer to remain with their current financial services organization if it fulfills their needs. According to the research, more than 60% of consumers would use one financial services organization if they offered everything they needed. That number rises with each younger generation, with 69% of Millennials and 76% of Gen Z preferring to work with one organization.
As a result of the strengths both fintech firms and financial services organizations bring to the marketplace, these two former rivals now seek to find the ways their products and services can complement each other to best serve customer needs.
Complementing Strengths with Strengths
The evolution to a collaborative mindset grew out of the need for fintech and financial services leaders to fill the gaps in their current business model or customer needs. At times, larger firms have decided to acquire companies to address their needs. For example, in 2019, Visa acquired Plaid, a network that makes it easy for people to share their financial information with thousands of apps and services. The same year, Mastercard announced its acquisition of Danish real-time payments provider Nets Group. In both cases, traditional financial services organizations purchased a rapidly growing fintech to fill a need in their digital offerings. More recently, an alternate approach occurred for the first time when fintech LendingClub announced it would purchase Radius Bank to broaden its suite of services.
The good news is thatmost financial services leaders will not need – or want – to purchase a fintech firm to introduce new digital offerings. Instead, building collaborations with these companies can pay dividends when developing new tools to attract and retain customers. Collaborations between fintechs and financial services organizations help both companies leverage their strengths while building a combined service that is greater than their individual parts.
From the perspective of fintechs, their strengths often include better rates, a stronger digital experience,online convenienceand faster time to market which are significant advantages when it comes to certain aspects of the customer experience.As referenced above, however, even attracting millions of users is no guarantee of a profitable business. Customer acquisition requires expensive marketing campaigns and as more fintech services enter the marketplace, it becomes more difficult to stand out from the crowd.
Collaborating with traditional financial services organizations provides a way for fintechs to increase adoption and revenue by building on the bank’s or credit union’s existing customer base and established reputation. Financial services organizations can leverage their strengths in long-standing customer relationships, comprehensive services, and strong brand identity. According to BAI Banking Outlook research published in March 2020, Millennials (72%) and Gen Z (78%) note friends and family financial service recommendations are very important to them. This same group also notes that established brands are very important when making purchase decisions (Millennials 78% and Gen Z 69%), reaffirming the importance and strength established financial services organizations have when it comes to attracting younger digital customers.
While fintechs gain a larger potential market, they offer financial services organizations the agility to rapidlyevolve into a digital-first environment. For years customer adoption and preference of digital channels steadily grew, but COVID-19 accelerated this transition much faster than anticipated. In this “new normal”, customers are becoming well-versed in using digital tools as the primary method of interacting with their financial service providers, which means they are paying closer attention to the experience with these tools. What we know from history is that necessity breeds innovation, meaning this temporary adoption of digital banking may become a long-term preference for many.
A perfect example is the need for consumers to open new accounts and services online while observing social distancing requirements and recommendations as a result of the Covid-19 pandemic. Currently, the online account opening process in traditional financial services organizations takes an average 23 minutes to complete and is often abandoned by the customer due to the multi-step process and information needed for completion. Pair this with the fact that 45% of Gen Z and 43% of Millennials open deposit accounts online compared to 27% of Gen X and 15% of Baby Boomers, and it underscores a significant gap in customer expectations and a financial services organization’s capabilities. Alternately, many digital banks claim account opening times of five minutes or less with the ability to upload identity documents online and fund the account via platforms like PayPal.
Identifying the Areas that are Better Together
With traditional organizations still owning the customer relationships, but fintech companies driving innovation in digital products, a strong strategy is needed for leaders to look at how the two can work together. By collaborating with well-established fintech partners, financial services organizations can become nimblerin responding to customer expectations while maintaining the regulatory and customer service infrastructure needed to maximize the relationship.
In looking at key areas for collaboration, certain services, such as deposits, lending,transfers,and payments are prime for strong alliances. By leveraging APIs that enable fintech software to interact with a financial services organization’s existing technology infrastructure, strong collaborations can foster an experience that keeps the customer satisfied with innovative services and comfort of working with their preferred organization.Financial services organizationscan also leverage their vast account and transaction level data to collaborate withfintechs to drive stronger marketing, increased stickiness among products and more insightful financial advice.
It is important to note that while digital is the way forward, financial services will not be 100%human-less. Contrary to common wisdom, the desire for hands-on service includes the younger generations. BAI Banking Outlook research found that even prior to the current pandemic, Gen Z and Millennialshad more interactions with their financial institution, making more branch visits and live agent phone calls each month than older generations.
With the onset of shelter-at-home orders due to COVID-19, financial services organizations witnessed a further increase in customer care and support calls. In response to the need for more remote interactions and the drop in physical branch visits, mostorganizations repurposed branch staff to serve as customer support while working from home. Witnessing this level of human engagementindicatesconsumers still desire to interact with trained staff for complex issues or new challenges. Customers want a mix between on demand digital services and access to human help when necessary.
Together, fintechs and financial services organizations can create a banking experience that becomes near personalized. The technology from fintechs can reduce the time needed to roll out new features such as account opening, while the banks and credit unions can market the full scope of the organization’s products and recommend which ones a customer should adopt based on their stage of life and financial needs.
By working together, fintech firms and financial services organizations can pave the way for mutual success in the coming decade while meeting the needs of the customers who “want it all”.
Karl Dahlgren is managing director of BAI, a nonprofit independent organization that delivers the financial services industry’s most actionable insights.