Generation Z accounts for 40 percent of all consumers, but only 47 percent of this generation uses a major bank. In order to stand out, banks must focus on new approaches to drive value for this growing segment. FinTech companies have been successful with Generation Z because they offer easy and efficient solutions. Banks need to invest in mobile banking and more self-service options to emulate the technology-driven ease offered by FinTech.
According to global management consulting firm McKinsey, by 2025 between 10 and 40 percent of bank profits may be under threat due to the expansion of FinTech companies. In order to proactively move ahead, banks often find ways of cooperating with the most promising FinTech companies. Even in traditional banks, customers interaction systems are changing, since most of the work is shifting to digital channels. The traditional bank with branch offices, queues and paperwork is becoming obsolete.
Some of the largest banks are closing branches that previously served both corporate and retail clients. This makes sense, as most people prefer to use online banking and mobile applications, rather than calling customer service phone lines or interacting in person.
FinTechs – Successful Examples
Revolut is the FinTech startup founded in the UK in 2015. Their main advantage is the use of interbank exchange rates, which are typically 2-3% cheaper than standard bank exchange rate. It is also possible to withdraw money abroad for free and get comprehensive travel insurance within a few clicks in the app for only €1 per day.
Ant Financial developed “3-1-0” online lending, that is, a service characterized by a 3-minute application process, and 1-second loan granting and all with 0 manual intervention. It has provided loans to over 4 million small and micro enterprises and entrepreneurs over the past five years, helping them tackle capital shortage, and allowing them to survive and grow.
Although FinTechs are more agile and flexible compared to traditional financial institutions, banks still have some major advantages – a high level of customer trust, expertise, large customer databases and huge amounts of data. In order to leverage these advantages, banks have to use all customer data and quickly react to real time events. Data-driven banks have to use data analytics and Big Data architecture to make informed decisions and more profitably serve their customers and streamline their operations.
The data that banks can use to enhance their profitability includes company financials, qualitative customer data, behavioral data, transactions and credit utilization history. Establishing a centralized system that captures this unstructured data systematically and consistently is the first step in this process. As banks begin to structure the centralized data, they must ground it in core business principles by identifying which business and operational metrics are critical to the organization. To be a data-driven bank, bankers must align top business goals and priorities with usable and actionable insights.
How to Fight FinTechs
Don’t Fight Them, Collaborate With Them
Huge global banks like Goldman Sachs, JP Morgan, and CitiGroup are now the biggest FinTech investors on the planet. They seek to secure their future through artificial intelligence and machine learning solutions. Smaller banks can also take advantage of these solutions through collaboration with local FinTechs and companies that are developing solutions for the banking industry.
Process Automation Through AI
By automating processes, there is more time for creative and complex tasks. 46% of large FinTech companies consider artificial intelligence to be one of the most relevant emerging technologies for investment. And for good reason. Artificial intelligence and predictive analytics have become crucial in helping companies obtain a competitive advantage.
Get to Know Your Customer
Banks need to target customers with personalized offers delivered on their preferred channel, based on real time events. Customer information needs to be stored centrally and handled from one place. That way, banks can deliver more personalized services by determining the optimal number of channels (or preferred channels) for communication. Customers expect personalized communication, at an optimal time, on an optimal device. That is the advantage of Opti-channel experience – a personalized approach, relevant offers and timely communication. Opti-channel marketing provides this experience by utilizing geolocation, artificial intelligence, and predictive analytics. Processes are automated allowing human resources to be used more efficiently.
Digital Platforms as a Customer Acquisition Tool
Banks need to have a full digital strategy roadmap in order to completely evolve and transform their digital platforms and solutions. By implementing a whole suite of digital products, banks can disrupt not just local markets, but regional markets as well.
The "new digital platform" concept enables both existing and new clients to apply for any financial or non-financial product (etc. cash loan) without visiting a branch. All necessary documents can be uploaded via the digital platform. The whole process, ending with money on the client’s account, lasts only about 30 minutes. This way, banks are tending to customer’s needs by enabling them to conduct the entire process online, without having to visit a branch.