FinovateEurope, FinTech Connect, Web Summit, Money 20/20, Amsterdam Fintech Week, Beyond Banking Vienna – what a whirlwind of a year 2019 has been! We popped up at more than 20 industry bonanzas over the past twelve months to talk, listen and learn about the top trends, tools and tactics in digital banking. Here are the three most important thoughts that have stayed with us.
1. Challengers gonna challenge: unlikely friendships might pave the future of banking
Old news: challenger banks are marching ahead at a furious pace to out-innovate everyone and boost their fan base. New news: they’re sort of winning. A few months back, Accenture dropped a bombshell predicting that UK-based digital-only banks will amass 35 million customers globally in the following 12 months. Sounds about right, given the current growth rate of 170% at which they are eating away at traditional banks’ customer base. They’re expanding across age groups, products and borders, moving into lucrative spaces such as serving underbanked SMBs, baby boomers and the US and Asian markets.
“Too bad that their primary accounts are still with incumbents,” naysayers might think, but it’s time they came up with another clapback. “One third of millennials in the UK are now using a challenger bank like Monzo, Starling or Atom as their primary bank. This clearly shows that consumer trust is slowly but surely growing for challengers,” says Remco Veenenberg, W.UP’s head of alliances. But consumer trust towards long-standing financial service providers is there, too. Does this mean that they still have a chance to win their beloved customers back?
Remco Veenenberg speaking at Open Banking Reality: Beyond the Noise with Saltegde in London, December 2019
Yes, but they might need to share them. Remco explains: “Let’s be honest: if you want to apply for a mortgage or open a savings account, you’ll probably go to an incumbent bank. But I think there’s a good chance that in the foreseeable future, Revolut, N26, Monzo and the like will open up marketplaces and team up with external suppliers to offer these kinds of products and services. And good interest rates, too. I’m eager to see how this is going to play out because if that’s the direction they’ll take, people will have even less reason to use traditional banks.”
2. Mind the gap: whipping millennials’ and Gen Zers’ finances into shape
Millennials are at the centre of attention, yet again. This time not for killing the paper napkin industry, mind you, but because of their dire financial straits. Simply dubbed “the broke generation”, millennials and their younger cohort, Gen Zers admittedly have a hard time keeping their head above water, thanks to the rising costs of living and their mounting debt from personal, student and credit card loans. “Millennials and Gen Zers are less well-off than other generations and often struggle with balancing their budgets. More and more fintechs are focusing on helping them improve their financial health, save up for long-term goals or make smart investment choices,” Remco explains.
József Nyíri, Remco Veenenberg, Tamás Braun and Gellért Vinnai demoing W.UP banking personalisation platform at FinovateEurope 2019 in London
And they seem to be happy about it. Literally. “If somebody is in a difficult financial situation, it will likely affect their mental condition. A lot of these budgeting and expense tracking apps developed by fintechs, and more often fintechs backed by banks, aim to give people financial stability. As a by-product, they also make them less stressed and more happy,” Remco points out. Which is the exact opposite of what traditional banks are doing. In fact, 71% of millennials would rather go to the dentist than listen to what banks have to say. Even if they do, it doesn’t make much of a difference: 80% of UK millennials keep putting off important financial decisions because they don’t understand banking products and services.
It’s not that incumbents are not targeting these age groups. The problem is they fail to engage them. “Incumbents don’t seem to be able to come up with attractive offers for younger generations so they lose customers to challenger banks by the day,” Remco says. And that’s about to turn into a long-term problem. Just because ’80s babies haven’t been dealt the best hand financially, doesn’t mean they’re not playing. “By 2030, millennials will have five times the wealth they have now. They already make up 50% of the global workforce and this is going to rapidly increase over the next couple of years.”
3. Big data or smart data: who will win the race for customers?
In Europe alone, 5,000 fintechs are competing against each other as we speak. At least 40 digital-first challenger banks are doing the same in the US, along with their twice as many UK-based counterparts. And of course, they’re all fighting traditional players across the globe. Who’s going to survive in this high-stakes, high-tech Battle Royale? A lot will depend on strategic partnerships but in Remco’s opinion, the bigger question is who will be able to use data more intelligently.
“If you think of Amazon, they're not just customer-focused, they're customer-obsessed. They can predict your every move. Right now, most incumbent banks are nowhere near this.”Remco Veenenberg, Head of Alliances
How ironic, given that they’re sitting on much more customer data than their digital-first rivals. Revolut and Monzo might know a customer’s transaction history or top spending categories but traditional banks also know their background and what banking products they have. Still, they’re not exactly jumping on the big data wagon, let alone the smart one. “The number of banks who use advanced data analytics is shockingly low. It’s high time they started building these capabilities, cleaning their data and getting it out of silos. Once they’re able to use data to create better, smoother and smarter customer experiences, it might give them the upper hand.”
