Many of the new fintech companies aiming to disrupt the industry are one trick ponies. They’ve got one claim to fame and they do it well, but they’ll have a hard time displacing the banks we see driving down Main Street.
Instead, they have something to offer banks. Banks holding down the status quo and technology companies trying to turn it on its head are clearly polar opposites. But they’d be a lot more successful if they worked together.
They simply have what the other needs. Traditional banks have the customer base that start-ups and even established fintech companies dream about. And those fintechs have the technology and new ideas banks need to stay relevant and top of mind with their customers.
I’m calling on banks and fintechs to join forces to retain customers and get new ones in the door with new and exciting methods of engagement. Fintech is what banks need to reposition themselves as helpful and knowledgeable, and not just selling machines.
Banks are honestly one step ahead because they already have what they need: customer data. However, the bureaucracy inherent in banks often stifles the creativity many of their employees have because new things can fail, and banks don’t take to failure too kindly.
That’s where the bright and shiny fintechs come in. They’ve got the off the wall ideas and ability to throw caution to the wind. The promise of fintech is that it can take that data to the next level and make accurate predictions about what customers could need down the road.
Legacy systems and an antiquated mindset keep banks behind their fintech partners. But on the other hand, “disruption” will never happen until fintechs have a solid customer base. Fintechs are the solution to the problem banks are finally realizing they have.
Some banks are already on it, which means the rest have some catching up to do. They realize that customers are changing quickly, so in order to have the upper hand among their peers, they must be nimble. Banks are risk averse by nature, but trying out new technologies and finding the ones that really improve the experience for customers will inevitably involve some failures. Still, it’s worth a try.
A bank doing it right by nudging
Since banks already have customer data, it’s a matter of using it correctly to both predict future needs and sometimes even look out for customers. Nudge theory is defined as encouraging customers to take actions that would be beneficial to them based on what you already know about them, such as their spending habits and their finances overall.
An example of a bank using software to analyze customer data to improve their finances over time is Absa in South Africa. In February they tried out a program that sent alerts (or nudges) to customers if their spending patterns seemed to be sending them off the cliff to a likely overdrawn account. They also offered options based on the customer’s specific situation to help them keep this from happening in the future.
While this might seem counterintuitive for a bank to be cutting down on a stream of revenue, happy customers are worth much more. In fact, out of the 50,000 customers who were involved in the pilot, 84% said they found the alerts useful and wanted to continue getting them. In addition, 60 percent of those who got the digital alerts went on to take actions to improve the way they handled payments.
Telling customers they’re on the road to overdraft will make banks less money, but using that data to predict what customers want and need can help them sell more effectively. You want your customers to tell their friends and family about your helpful and personalized services. Word of mouth is a much more effective source of revenue than the shark-y tactics of yesterday.
Machine learning is the backbone of most fintechs and it’s what banks need to fully understand their customers. It’s able to figure out the next best advice or offer for customers that will fit their future needs and help them improve how they handle their money. For those banks that are able to foster that fintech mentality of putting customers first, that’s great. For all other banks, it’s time to partner strategically.
Author: James Eardley
Global Director, Industry Marketing
James Eardley has 20-plus years of experience in all facets of marketing, managing and implementing Cloud and On-Premise B2C and B2B “Digital” and “Front Office” software applications.