The $4.7tn Fintech Challenge
Banks are realising that in the rapidly developing world of smartphones and apps they are falling behind in the innovation race.
Fintechs (financial technology start-ups) are developing new services which harness the power of the internet in the palm of our hand to revolutionise payments, loans, money transfers and digital currencies
I hear bankers quaking in their boots when I mention this. The reality is, that if ‘traditional banks’ do not sharpen their act and begin to think like start-ups the Fintechs will steal their customers - particularly the young ones... and whilst this may not have a significant impact on profits in the short-term, the young people of today, particularly in this region, are the millionaires of tomorrow... and let’s face it, how often do people change their bank, not often (72% of people over the age of 35 in markets in this region would consider changing banks, but only 14% actually do - according to Market Watch)
So, let’s quantify the risk if the banks do not embrace the technological revolution. Goldman Sachs estimates that $4.7tn in revenue for traditional financial services is at risk of being displaced by Fintech upstarts.
In this region, retail Banks are being attacked for every angle, the threat from Telco’s and the threat from Fintech’s are widely considered to be the two greatest risks to lost earnings. In other words, service providers who are offering greater convenience, a better deal or, and this is important, speak the language their customers speak.
To counter, I am seeing banks flirt with business models that are designed to appeal to a younger audience but sadly, in a effort to create a cool, trendy image, they are in danger of making themselves out to be trying too hard - those of you who have children will know that as soon as you tell your child something is cool, they will hate it - even if it is cool - just because their parents like it.
Banks are aware of the risk and opportunity
Across the region, Banks are aware of the opportunities and threats posed by technology, but I am yet to see a consistent approach to tackling it.
In southern Africa, some banks are partnering with technology firms to co-create new ways of doing business. Experimenting and launching new services that compete directly with Fintech company offers. In Nigeria, I am seeing technology firms creating platforms for improving loan approval and payments, with instant approval based on data analytics - information which in itself helps to identify creditworthy borrowers.
Santander, National Bank of Australia and Citigroup, are providing venture funding and seed investments for financial technology firms, whilst banks like Bank of America and Sberbank are creating solutions themselves, or partnering with start-up companies to do so. Others, like Spain's BBVA, are buying Fintech’s.
One thing is for sure, the world of banking is changing forever and technology is set to play a bigger and greater role in the delivery of what some call banking services.
The reality is that the future looks fascinating, with telecoms operators, Fintech’s and banks set to collide in a feeding frenzy of multi-channel offers. For banks and customers alike, this could well be short-term confusion and competition, medium-term consolidation and a long-term paradigm shift in the dynamics of our relationship with banking service providers.
My advice to bankers is as follows:
Adopt a ‘rapid incremental innovation’ culture in your business especially when working with technology
Never stray from who you are as a brand. Evolve with your customers. Push them if necessary, but try to quantify the risk of doing so
Consider seed investment or partnerships with Fintech’s with a view to acquisition. It is not clear yet who the winners and losers will be
Plan your IT infrastructure with as much flexibility as possible
Never loose sight of the customers you are serving
Differentiate through a unique product offer, brand driven culture and fine tuned customer experience
Communicate in language that is easy to understand