Banking is one of the most traditional industries in the world. It is staid and often dull, and most people like it that way. They want their banks to be a bit boring, because when you trust an institution with your money what you want is order and propriety.
Increasingly, however, customers are expecting something else too. They want an experience that makes the best use of modern technologies.
These two requirements are not an easy fit, and many banks are finding it a challenge to adapt.
“A lot of the banks think that having a fintech or digital strategy means producing a mobile app,” says Paige Robertson, the head of marketing and operations at AlphaCode. “But that is just giving existing customers another channel to engage with the bank. What is truly disruptive are things like bitcoin and the blockchain – businesses that never previously existed.”
The last few years have seen a lot of activity in the financial technology, or fintech, space, as many companies have seen the opportunity to fundamentally change the way that financial services are delivered.
“We divide fintech businesses into two camps,” says Dominique Collett, senior investment executive at RMI Holdings. “There are those that work within banks and insurers to help improve certain processes, and then those trying to disrupt them.”
In both cases there is enormous room for innovation.
“Fintech firms think about the customer very differently,” says Collett. “They have incredibly strong design and user experience capabilities. They understand how to engage a customer, get them on board much quicker, talk to them much better, and make it cheaper and easier to transact. And because they are fast, develop very quickly, and really understand digital design, they deliver a great customer experience. Banks struggle to compete because they are big, slow cumbersome machines.”
Banks clearly have to find a way to meet this challenge. A number of them are doing so by partnering with fintech companies, or absorbing them into their business.
“This way you get the benefit of bringing the existing customer base and data that the banks sit on and combining it with the design and technologies that sit with the fintech company,” says Collett. “That’s a match made in heaven, but it’s an incredibly difficult match to make because the two types of business are very different culturally.”
An example in South Africa where it has worked is Standard Bank’s acquisition of SnapScan. Recognising that the fintech business was successful precisely because of how it operated, Standard Bank has given SnapScan the room to continue running as an entrepreneurial start-up in its own offices, with its own culture and therefore allowed it to continue its momentum.
Putting the customer in charge
Banks are also having to accept that in the digital era they need to allow their customers more influence.
“One of the greatest thing about the fintech boom is the way that technology drives efficiency and transparency,” says Collett. “Banks have always come under fire for the fact that their pricing and processes aren’t transparent, and fintech is allowing a lot of that mystery to be removed.”
For example, My Treasury demystifies the world of bank deposit rates by allowing South Africans to compare hundreds of products through a single website. They can quickly and easily identify the most attractive rates and the product that best suits their needs.
Technology is also allowing customers to access financial services on their own terms, rather than those dictated by providers.
“We are moving to a stage where many people don’t want to walk into a branch,” says Robertson. “They don’t even want to talk to people. They want to be able to deal with their bank when they want to. So, if they want to open an insurance product at 11pm, they should be able to do that. They don’t want to be limited to the hours a bank offers.”
This is not even such a radical concept any more. OUTsurance, which has grown into one of South Africa’s five largest short-term insurers, has never operated a branch. It relies entirely on call centres.
In the next 12 months, South Africa is also expecting the arrival of two new banks – Discovery Bank and the Commonwealth Bank of Australia – both of which will provide completely digital offerings. They will operate entirely without branches.
This is the kind of future that fintech enables.
“People are always going to need banking,” says Robertson. “But I don’t think they are going to need banks as we know them today.”