Competition is undoubtedly fierce in financial services since the fintech revolution in the early 2000s. Over the past decade, we have seen the emergence of new players who have deeply transformed the sector, imposing their own pace on incumbent banks.
Fintechs have been able to challenge established financial institutions thanks to their customer-centric approach.
They have addressed pain points and met customers’ needs by engaging with them via the use of new apps and dedicated services. This especially appeals to tech-savvy Millennials and Gen Z, who grew dissatisfied with established banks after the 2008 financial crisis.
The challenge this posed to banks has been over-analysed, with the common narrative that they struggle to keep up with newcomers - the argument being that their legacy technology cannot compete with the innovations brought about by fintechs.
Banks have invested millions to retain their existing customers by focusing on loyalty. They have tried to match the offering of challengers by making banking easier, whilst being more accessible and transparent.
The issue is that customers don’t naturally form relationships with their banks.
It is too simple to say the work that banks have undertaken to compete is ‘all for nothing’. Of course, the thriving success of the likes of Monzo or Revolut clearly demonstrates that they have successfully attracted new customers.
However, loyalty from consumers is a tangible concept, even among younger generations.
Our latest survey (undertaken in conjunction with OnePoll) on consumer attitudes towards technology in finance and payments, highlights that there is, in fact, a real sense of loyalty from Brits to their chosen financial institutions.
Across age groups, around 70% of respondents mentioned that they were loyal to their current bank. This suggests that they are perhaps not so easily poached as popular belief suggests.
What remains true is that customers are more likely to form relationships with companies that offer products and services they want.
Our survey shows that over 90% of Brits cite effective technology as being important in deciding where to bank, versus 88% who cite interest rates.
This highlights their appetite for strong technology offering, especially when it outweighs interest rates which directly impacts their finances.
All in all, from the point of view of the customers, it doesn't matter who serves them, as long as their experience is seamless. To attract and retain them, banks must deliver flawless technology and services.
They can also rely on their reputation and legacy that goes hand in hand with their long-established presence in the financial landscape.
The all-time high valuations of certain fintechs over the past few years, speculations that they may cut corners in the pursuit of growth or that they are vulnerable to economic downturns, all play in favour of banks.
The best of both worlds for customers is for their trusted financial institution to offer the technological capability that challengers often excel at.
The expectation of a seamless banking experience is now inherent.
Consumers no longer have the time or the inclination to visit bank branches. As highlighted in our survey, 54% of respondents believe that the ability to complete financial transactions online constitutes a seamless banking experience.
The current turmoil brought by the COVID-19 pandemic only reinforces this fact.
Incumbent banks have done their best to meet their consumers’ expectations, but more needs to be done. To encourage customer loyalty, they should now opt for a different approach with less focus on their brand building.
Instead of focusing their resources on racing with fintech players, banks should centre their attention on technology to leverage new opportunities to better serve their customers.
They can improve their internal platforms and services, by focusing on speed, security and quality.
As mentioned earlier, consumers are indifferent to which entity processes their payments nowadays, as long as the provider is secure, regulated and offers the most cost-effective rate.
This is not to say that fostering customer relationships is not important, but rather that the promotion of banking services can be outsourced to other partners such as retailers and other customer facing institutions.
Banks can also capitalise on the growing number of retailers willing to offer strong payment technologies.
From PayPal, Apple/GooglePay, to “buy now, pay later” schemes, brands outside the traditional financial services are eager to play a role in offering greater reliable and flexible payment options.
With resources freed up, banks can focus on achieving competitive advantage over challengers by improving their platforms. This new approach will help them to unlock their full potential to innovate and offer daring, new, easier and more seamless ways of banking.
Find out more about Modularbank here.
For more information on all topics for FinTech, please take a look at the latest edition of FinTech magazine.
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