The technological revolution has left no industry untouched.
But while sectors like healthcare, construction and commerce embraced these digital capabilities wholeheartedly, traditional banking was slightly slower on the uptake. That was, until recently...
The rise of fintech - with money apps in particular - has reinvigorated the banking industry in 2020.
Most noticeably, challenger banks like Monzo and Revolut have shown just how effective adopting a digital-first approach can be.
By harnessing the power of data and delivering a hyper-personalized, real-time approach, these disruptors have encouraged traditional banks to reevaluate how their customers bank, and the role that technology can play in their products, too.
What’s more, Covid-19 has now accelerated this digital arms race. When stay-at-home mandates rang worldwide, banking had to adapt.
From a branchless-first approach to virtual customer service and money saving apps, banks, like all other industries, were forced to amend their strategy. In fact, a study carried out by the deVere Group suggests the crisis has caused a massive 72% rise in the use of FinTech apps in Europe alone.
Yet there still remains a gap between what traditional banks offer, and what today’s customers expect.
The key to overcoming this is further investment in technology. As banks aim to rise above their competition in a post-pandemic landscape, they will increasingly turn to fintech.
So, let’s dig deeper into fintech trends, the future of fintech, and how it is transforming banking in 2021.
In the contemporary banking industry, a customer-centric approach is key to gaining a competitive advantage.
Customers have increasingly come to expect a personalized, technology-driven experience that meets their individual needs.
In fact, KPMG recently reported that customers consistently ranked banks with great personalization as best in class.
So, for banks to succeed, personal relationships must be created with customers — and banks themselves must become embedded in their customers’ lives.
The growth of this personalized approach can be seen in banks placing more and more focus on understanding their customer’s life events and life stages.
Whether it’s buying a house or retiring early, banks that can predict events — and deliver solutions such as smart money tracker and organizer — are the ones that will appeal to today’s customer.
Under social distancing and lockdown restrictions, the ability to easily transfer money from one person to another is no longer a novelty, but an expectation.
Real-time, person-to-person digital payments have become a real battleground for banks.
In fact, the number of banks and credit unions looking to enhance their P2P payment capabilities has risen from 25% in 2019, to a huge 40% in 2020!
What’s more, instant digital payments are seen as a method of driving loyalty and revenue. P2P payment technology can increase customer engagement, and drive profits in new areas of the business.
Since 2011, the percentage of smartphone owners in the U.S. has grown by 46%.
And as mobile security and technology continues to improve, these users have become increasingly comfortable using mobiles as their primary device.
In 2020, banks need to be engaging with their customers on the platforms and devices that they regularly use, primarily via free money apps and services.
For contemporary banks to succeed, they need to acknowledge their customers' habits — and invest in technologies that enable a mobile-friendly and mobile-secure solution to their product and service delivery.
Enabling smartphone payments and mobile banking is becoming more and more important to banking in 2021. And that means that fintech services which make these things possible are becoming increasingly sought after!
The growth of real-time services has accelerated at a quicker pace than expected.
Today’s customers now demand products and services that interact with them in real time — and will go elsewhere if this is not offered.
This acceleration has transformed real-time payment functionality from the ‘new norm’ to the ‘expected norm’ in 2021.
The conversation is no longer about how to get set up for a real-time future, but instead how to actively leverage real-time to drive better services.
Failure to invest in the financial technologies that deliver these real-time services will see banks immediately fall behind their competitors.
In 2020, data analysis is key.
Banks continue to seek opportunities to gain a competitive advantage through the utilization of data, analytics and actionable insights.
By using fintech services to combine transaction and customer data with external sources, smart banks will be able to construct a unified view of the customer.
This unified view can then be utilized across broader services, from product teams to relationship managers, to deliver a seamless user experience.
By gathering more information on their customers, banks can better anticipate their needs, gradually develop their fintech sandbox, and ultimately capture primary ownership of that customer relationship.
Commerzbank wanted to launch a mobile based app for its banking services, but were restricted by EU laws requiring bank customers to verify their identity in person.
By partnering with IDnow, Commzerbank was instead able to verify customers’ identity via videos on their smartphone or computer.
This resulted in a 50% increase in customers signing up through the Commerzbank app!
FidorBank developed an online bank account incorporating a real-time, easy to use, and low cost ePayment system.
The system utilized an eWallet that grouped a customer’s accounts together, and displayed all of their account holdings.
All that was missing was a way to buy currency, make payments and view balances in multiple currencies!
So, FidorBank partnered with fintech firm CurrencyCloud to deliver a payment engine that could be included without investment in additional infrastructure.
After implementing the changes, FidorBank went from 200,000 to 310,000 customers!
Monese is a mobile only UK bank that allows customers to open an account in 3 minutes, using just their mobile phone and their passport.
However, Monese’s system lacked the ability to send payments globally. This was a feature that would have to be built from scratch — and would require two years of gaining regulatory authority in each individual country.
But there was an easier solution. CurrencyCloud, the same fintech firm used by FidorBank, offered Monese access to their global payment network through an API that was integrated in just 2 hours.
The partnership drove an 8-10x reduction in forex costs and a huge reduction in payment fees. Monese subsequently hit 1.8 million transactions before their $10 million Series A.
Revolut is an app that allows customers to send and receive money through the app or via social media.
But a few years ago, Revolut lacked the capacity to send and receive multiple currencies from all over the world.
Banks refused to accommodate the service. Without their services, Revolut would have had to become a bank itself — which would have involved the time-consuming task of building the necessary infrastructure.
Instead, CurrencyCloud stepped in. With CurrencyCloud’s partnership and infrastructure, Revolut managed to gain 160,000 customers at launch and saved their customers €30-€40 per large foreign transfer!
Bankia is a major Spanish bank, formed from the consolidation of seven individual banks.
Bankia manages invoices for 33,000 SMEs. But their original billing process was incurring huge costs — and causing suppliers to be delayed in payments.
Fintech firm Eurobits offered Bankia an invoicing platform that allowed for the creation of supplier portals to operate within the bank's digital infrastructure — and which could subsequently integrate with other ERPs.
The partnership enabled Bankia to migrate the invoicing services to an electronic system — reducing costs and achieving an average payment period of 10 days.
N26 is a mobile only bank that offers a free basic current account and debit Mastercard to its customers. Anyone in the Eurozone with a valid ID can sign up in under 10 minutes.
Initially, N26 relied on regular banks to facilitate foreign payments, which incurred high costs for customers.
But when they partnered with TransferWise, N26 was able to bypass this — and significantly reduce the cost of making cash withdrawals in countries that did not use Euros.
N26 went from having 100,000 customers before partnering with Transferwise, to 500,000 customers in the 2 years since.
It’s clear that the use of financial technology in the banking sector is beginning to catch on.
The growth of competitor challenger banks, combined with the widespread and lasting impact of the coronavirus pandemic, has encouraged more and more banks to commit to the next step in their digital transformation.
With the capabilities of fintech continuing to grow exponentially, it will become increasingly worthwhile for traditional banks and wider financial organizations to invest in these capabilities in the future.
If you’re looking for a financial technology partner to build your fintech ecosystem and integrate it into your own business strategy, Orbitum has the experience and knowledge to help you make the most of financial technology in 2020. Contact us today to learn how we can help you.
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