Digital-only challengers have certainly made customers swoon over the smooth user experience they offer – and left competitors gasping. But with newer and newer players popping up on every corner, they might want to take some lessons in how to cement market share and keep customers for the long haul. And who better to teach them than savvy incumbents?
Harness the power of together
Instead of competing, some banks are big on teamwork. Especially, when it comes to building well-targeted, industry-wide platforms to catch up with disruptors. The Swish mobile payment solution, for example, was launched by seven Swedish banks in 2012 and today dominates P2P payments and merchant purchases. The app is used by nearly 6.8 million people, about 67% of Sweden’s population.
Inspired by the success of local apps like Swish, a group of Swedish, Norwegian, Danish and Finnish banks announced plans in 2018 to develop a pan-Nordic payment system. The new multi-currency payment infrastructure, to be named P27 after the 27 million people living in the four countries, will enable domestic and cross-border transactions.
Never underestimate the power of emotions in earning and maintaining customer loyalty. Especially in banking. Playing on emotional chords, like reducing customers’ anxiety over managing their finances, can work wonders. For example, allowing cardholders to instantly freeze and unfreeze their accounts without cancelling their cards can help them worry less and feel more in control.
Services tailored to customer personalities can also bring outstanding results for smaller, specialised financial institutions. For example, Swiss private bank Bordier & Cie has developed a proprietary system using algorithms and customer data to set up customer archetypes, such as the ‘consumer’ or the ‘protector’, and manages their portfolios accordingly.
In an example of how advisory tools can blend machine learning with human emotion, Morgan Stanley has armed its advisors with algorithmic assistants that send multiple-choice recommendations based on variables such as market changes or customer life events. The project is expected to provide better solutions for high-profile clients than “mere software allocating assets for the masses”.
Leading incumbents have been cosying up to fintechs and investing in digital startups, including neobanks, to expand their digital capabilities, gain market share, acquire talent and speed up the development of digital products and services.
JP Morgan Chase, for one, relies heavily on digital partnerships to scale product offerings in several categories. It works together with online lender OnDeck to extend quick loans to small businesses, collaborates with fintech firm Roostify to provide a digital self-service mortgage platform and has also teamed up with TrueCar to offer digital car-buying and financing services. Other digital frontrunners, like BBVA, have created entire ecosystems of fintech partnerships.
No wonder that half of US bank executives expect fintech partnerships to be one of the key trends of 2019, with digital account opening, payments and lending remaining the primary areas for collaboration, according to a recent survey. Fintechs bring their innovative mindset, agility, customer-centricity and digital infrastructure to the table, while incumbents can help fintechs scale better based on trust and brand recognition, and tap their distribution network.
Leading neobanks, like N26, Revolut and Starling, have also joined forces with other fintechs to bring new services and functions to market more quickly. Digital-only banks are expected to forge further partnerships and create more application programming interface (API) marketplaces in the future, especially since the open banking standards in the UK and the second Payment Services Directive (PSD2) in the EU took effect. Making use of APIs and enabled integrations is a more budget-friendly method for rolling out new products and acquiring new clients.
Starling, for example, has teamed up with digital wealth management startup Moneybox to allow customers round up their everyday purchases and invest their spare change in companies from all over the world through tracker funds. Moneybox uses Starling’s API to connect accounts with its system. In another example, Revolut has partnered with cloud-based accounting platform Xero so customers can link their business accounts with their accounting system, automatically export and import spreadsheets, and track the financial health of their business almost in real time.
What banks and neobanks must learn from big techs
Old-school and new-school banks, however, are not the only players in the game of banking. Large tech companies like Google, Apple, Facebook and Amazon (aka GAFA), and Asian internet and e-commerce firms like Baidu, Alibaba and Tencent (BAT) have made rapid progress in digital financial services and turned the competition up a notch.
Amazon, for example, extended $3 billion in capital to 20,000 businesses in the US, the UK and Japan between 2011 to June 2017, while Alibaba issued small business loans in the amount of approximately $63.4 billion in 2017, equalling 30% of the loans extended by the Industrial and Commercial Bank of China, the top small business lender in China.
If retail banks can’t keep up, there’s a good chance that they’ll be replaced by tech giants, according to a survey of UK banking customers and executives by Pepper, Bank Leumi’s digital-only unit. About 66% of retail banking executives expect that platform companies will offer full banking services in the next five years in the UK and will snatch clients both from incumbents and neobanks. But for all that, only 29% of customers believe tech giants will overtake retail and digital-only banks.
Lock down your customers
Big techs are spoiled with advantages over incumbent banks, ranging from a large user base and low online acquisition costs to big data insights, supporting pricing and risk management, and internet banking licences. And they see the expansion into financial services not as a final goal, but a tool to further increase customer loyalty.
When it comes to the quality and speed of service, one of the biggest strengths of tech companies compared to traditional lenders is the first-class customer experience they offer. No wonder that consumers today tend to have a stronger emotional connection with tech brands, like Apple, Google and Amazon, than with their primary banks, Deloitte says.