According to a study by PricewaterhouseCoopers (PwC), 33% of U.S. Millennials (adults ages 26-41) are interested in changing banks within the next 90 days. As if that wasn’t worrisome enough for traditional financial institutions, the same study showed that one in three Millennials doubt they will need traditional banking services in the future.
While some may ignore these statistics and argue that millennials are just tech-obsessed, recognize that the COVID-19 pandemic changed business and brought upon the mass adoption and acceptance of many financial technologies (also known as FinTech).
A study conducted by Plaid argued that 73% of Americans spanning all ages consider FinTech tools as part of “the new normal.”
Does that mean FinTech has come to replace traditional financial services?
Not exactly, but they are forcing the financial industry to change how they do business or risk losing their share of the market.
What is FinTech & How Is It a Threat to Traditional Financial Businesses?
Even before the pandemic, traditional banking and finance institutions were aware of the rise of FinTech.
FinTech refers to emerging technologies designed to improve and automate financial services and product purchasing processes.
As a highly consumer-oriented enterprise, FinTech companies started by cashing in on the convenience economy and focusing on offering mobile-finance options that traditional institutions took longer to adopt.
Now FinTech can be found in a multitude of industries, including investment management, education, retail banking, nonprofit fundraising, and financial services for consumers. Even Cryptocurrency is a part of the FinTech movement.
With McKinsey & Company reporting that mobile banking usage increased by 20-50% during the pandemic and continues to rise, it’s clear that customers demand technologically enhanced financial services. Many larger banks and investment firms have moved in that direction and are incorporating more FinTech solutions.
For small to medium financial institutions, however, competing with FinTech is no easy task. Nevertheless, there are four strategies any institution can implement to have a better chance of maintaining their market share, growing their customer base, and competing with tech advances in the industry.
4 Strategies for Competing with FinTech
#1 Modernize How You Process and Analyze Data
Most financial institutions are using legacy systems designed 20-40+ years ago, which in some cases is before the modern Internet existed. In other words, many of these enterprise resource planning (ERP) software platforms used by financial institutions were not designed with mobile communications or the digital economy in mind.
How then can we expect outdated systems to handle mobile banking or website applications?
Furthermore, the sheer abundance of data we produce today was never dreamed of when these legacy systems were designed. They simply cannot store the data, let alone analyze that data to gain insights about consumer behaviors, product innovation ideas, or fraud prevention.
To modernize your financial institution’s system to handle current website applications, mobile apps, data storage, and analytics, you will have to invest in new technology solutions or have customized solutions designed for your specific needs.
Modernization projects may include:
● Internal processes optimization
● Implementing modern data management strategies
● Developing applications that support analytics and business intelligence
● Automating processes and workflows
● Considering data storage options that offer flexibility for access and analytics
● Choosing solutions that offer availability as business needs change
● Identifying ways to support different data types to get the most out of collected information
● Simplifying technology needs and avoiding duplicate solutions
● Identifying integration needs before purchasing new solutions
#2 Level the Playing Field by Fighting Digital with Digital
When you think about FinTech, think about them like any other competitor in the business. Whatever they offer, you must either match them or one-up and outdo them. Therefore, when FinTechs offer mobile banking and digital payments, at a bare minimum, you need to provide the same level of service.
Building a digital app requires the services of a mature and experienced partner who understands your industry, your go-to-market strategy, and how to win out over the competition. It is not something that can be done well in a matter of days.
Remember, you’re investing in a solution designed to impress your customers, provide them with the services they need, and keep them coming back. It’s a big deal that will change how you communicate with customers moving forward.
Therefore, it will take time, budget, and strategy to come up with the right digital solutions for your customers.
For reference, the average time to build a customized mobile app is around 9.5 months. Likewise, it takes about 4.5 months to build a web application, and around 5.5 months to design a website that offers responsiveness and a great user experience via laptop, tablet, or mobile.
(You can learn more about what’s involved with building apps and customized software pricing models by reviewing this article.)
When you set out to build a digital solution for your customers, chances are you’ll seek out a technology partner, but every partner is different. Your experiences with these vendors will vary, and each may have different processes for developing your solution.
At AltSource, our Go-Live Development Process includes the following four stages:
Connect: We go over your ideas, your business concerns, and your timeline. Be ready to answer questions about your pain points, vision for the finished product, and other goals.
Reimagine: Next, we enter the discovery process and go deep into the weeds about the user workflow, experience, persona research, must-have functionality, project feasibility, timeline, and the estimated cost.
Build: After you agree to the scope, we let the specialists and developers get to work. You’ll experience regular check-ins to see the progress, provide feedback, test-run iterations, and sign off on each stage as we work together to plan your go-to-market strategy.
Launch: Finally, we start putting your new solution into play with go-to-market support, companywide adoption guidance, launch testing and optimization, and post-launch advice.
#3 Comb Through Your Decades of Customer Data for Innovation Inspiration
While FinTechs may have more investment capital and technical developers than your financial institution, you have most likely been in business longer, and have more customer data than you know what to do with.
That data is your goldmine.
After you modernize your systems and start developing better ways internally to store, analyze, and review your data, you can start gaining massive amounts of market research based on your customers’ behaviors.
With this information, you can analyze how customers spend their income, invest in insurance, and so much more. From that information, you can segment your customer base to identify those more likely to invest in additional financial services or products you could offer.
To determine how to innovate based on data, first, check out how customers use your current services.
For example, if you’re a banking institution, do customers deposit money via check in person? Are they transferring money frequently? Do they use auto payments?
These are just initial questions, but you get the point that by digging deep into how your customers interact with you, you can start to see what they need from your business. Perhaps you can even see ways to make your services better, faster, and easier to use.
Customer data can also help your financial institution innovate when it comes to fraud prevention and risk assessment.
For instance, when you modernize and digitize processes, part of the update could include implementing programs that monitor customer patterns.
Most people maintain steady patterns of spending, investing, and claim reporting, so any unusual behaviors can create an instant red flag for fraud. If your system can detect potential fraud quickly and act upon it by notifying the customer and freezing the account, you’ve just provided amazing customer service and stopped potential fraud.
#4 Start “Business-Building” to Branch Out And Gain More Market Share
One of the main reasons that FinTech products were adopted so quickly was because they filled the unmet needs of providing financial services directly from your phone. FinTechs built a new business within the existing finance industry by homing in on a pain point they could solve.
Your organization can follow their example and duplicate their results.
Larger financial institutions are already finding new ways to do this, and reports from McKinsey and Company show that 65% of financial-based businesses have listed business building as one of their top-five priorities for revenue growth.
If you’re an SMB, business building can work for you as well if you keep open-minded. There are new-business building opportunities for both the business-to-business (B2B) and business-to-consumer (B2C) markets. Depending on the pain point you hope to solve with your new business, both the B2B and B2C markets may offer more growth potential than you’d previously thought possible.
Examples of new-business building include:
● Neobanks: These are digital-only banking service providers that often target a specific niche market, like doctors, freelancers, business owners, and more. Neobank mobile apps provide niche-specific features for financial tasks.
● One-stop-shops: Imagine offering businesses traditional financial services, but then adding on related services that every business needs, like accounting software, bill payments, invoicing, insurance products, and other options. A lot of companies would gladly do more through one provider just to save time.
● Banking-as-a-service (BaaS) APIs: Lots of non-financial businesses need to offer customers financial products, like credit cards. If they partner with your financial firm, they embed your company’s software and products into their apps and websites for a seamless customer experience. BaaS integrations allow you to connect with other businesses to offer your financial services and products to a wider range of customers.
Clearly, this list is not exhaustive, and it sways more toward banking options. Nevertheless, these solutions address key pain points with a technology solution that saves customers time and money. With your years of customer data, imagine the ideas you could come up with that could create your next new business.
If business building sounds like a good option for your organization, even if it’s somewhere down the road, make sure to mention your plans to your technology provider during the modernization process. Doing so will inform your provider how to build with this option as a scaling goal for later. As they modernize your system in a strategic way, they can lay the groundwork necessary to reach your new-business building aspirations.
AltSource Helps Financial Institutions Leverage Data to Offer Better Customer Service
Using your data to serve your customers better is one of the best moves financial institutions can make when competing both within the financial industry and with FinTechs.
Just look at this real-world example: An investment solutions provider to high-end clients wanted to know if they were providing the best service and where they could improve.
They identified that their agents were using investment data to make recommendations based on each client’s risk tolerance and goals. Unfortunately, the system the provider and agents were using was outdated and not robust enough to run reports and offer the most up-to-date information, which significantly upset clients who were not getting sound investment recommendations.
The provider came to AltSource for options, so our product management team of industry-aligned experts and technology developers worked with the provider to determine the best technology solutions for their needs. AltSource built them a custom portfolio assessment tool web application. Go here and learn how this web app improved their business and increased customer satisfaction.
If you have questions on how your financial institution can start implementing the four strategies discussed in this article, please reach out to our team of experts: email@example.com