Financial services institutions need to reinvent themselves by opening up to the broader digital consumer economy - before a maverick like Amazon storms in to further disrupt the banking market.
In a report released in July, the World Economic Forum described how fintechs have changed the competitive dynamics in financial services, but not the power base. As mentioned in a previous blog, the banks used to view them strictly as competition that was trying to nibble away at retail and commercial FSI franchises. Today, fintechs are viewed as potential partners and acquisitions. The biggest threat on the horizon for the banks is from Big Tech like Google, Apple and Amazon.
Fintechs, for the most part, have not succeeded in getting critical mass of customer base or ecosystems. But what they have done is reshaped FSI customer expectations by delivering superior customer experiences. The benchmark for excellent CX is that delivered by fintechs and Big Tech; not a rival bank.
Fintechs have also accelerated the pace of change. Typically, this is not a core competency of FSIs, so it drives the need to partner/acquire fintechs in order to outsource innovation.
Leading FSIs are already building out ecosystems that include fintechs as well as other 3rd parties. The FSIs that will survive and thrive are those that redefine themselves from the $4 trillion banking business to participating in the $60 trillion networked digital consumer economy, by 2025 as described by McKinsey. They will serve up integrated experiences to customers, and act as financial wellness partners. Banks that view themselves as sole, proprietary manufacturers will have to be hyper-focused on excellence. Those that cannot achieve excellence and scale, and do not open up to the broader digital consumer economy, will end up as the behind-the-scene plumbers of FSI.
Many banks consider themselves tech companies. The largest asset that tech companies like Amazon and Google have is data. Banks realize they have to act more like tech companies and use their data to create 360-degree views of the client in order to deliver value in new ways with rewards, incentives and better services – all delivered excellently – that will drive cross-sell and up-sell.
Among some in the industry, there is a sense of urgency as the lines between industries blur. For example, Apple and Google offer payment services; Amazon loans working capital to small vendors and takes cash on deposit for the unbanked; Grab, the Uber of Singapore, offers peer-to-peer payments, etc.
So what is a bank to do? In the US, especially, where the foot is off the gas in terms of net new regulation, it is time to prepare for the disruption that is coming. Don’t be a laggard like some of the unfortunates we’ve seen in retail. Start creating the strategy and execution plan to deliver excellent customer experiences that manage the customer in context and in real time. Ruthlessly prioritize what capabilities your bank excels at and explore what an external partner fintech could contribute as a superior component of an experience.
Think beyond strictly financial services in creating an ecosystem (such as Suncorp’s Marketplace). Redefine how your bank delivers value and gets new customer insight (like AIA’s Vitality) by which to upsell/cross-sell.
Get, organize, analyze and exploit the data.