It’s no secret that fintechs are nibbling at the pie that was historically reserved for banks, FIs, and other legacy service providers. Let’s examine how fintechs captured such momentum and how financial services organizations can combat these changes in user expectations and competitive market share with their own efforts, both reactive and proactive.
How did we get here?
What is it about the financial landscape that makes it so ripe with opportunity for fintechs? Number one: in broad terms, FIs’ historically slow technological advancement or readiness to “move forward” and adhere to shifting demands by both B2B and B2C consumers. Moreover, the time and cost to develop new software has dropped drastically, with FIs unable to keep up due to the legacy anchors tied to their ankles.
Fintechs’ “technology-first” mindset has put them in a position to automate and improve some (or many) steps for users. Rather than accepting the status quo deemed “good enough” by many FIs, fintechs posed the question, “couldn’t it be better?” As noted in McKinsey’s 2020 report on next-gen tech for finservs, “the industry’s average product release time has ranged from nine to 24 months — a glacial pace compared with that of fintech companies, which can deploy code daily and run dozens of A/B tests a month.”
For fintechs, these capabilities have enabled more rapid digital transformation and innovation, which proves especially beneficial when advancements are made with customer experience at the forefront of planned and implemented initiatives.
Number two: the cracks in the armor — fintechs have proved adept at targeting niche needs and manual steps. This has proved lucrative (especially for error-prone processes like file-based mass payments where 30% error rates are standard), and has attracted millions in VC investments.
Look at the marketing & sales space for an example of what happens when thousands of companies start vying for market share through niche offerings — customers benefit from more targeted offerings, and these niche offerings bolster capital through their “technology-first” mindset. However, others that have been in an advancing space for a longer amount of time are pushed to keep up with developing demands and need for connectivity.
What’s more, these trends are complemented by, 1) an already fractured and largely national regulatory landscape that benefits national players and, 2) recent changes like PSD2 in the UK that mandate a new level of tech-forward ‘openness.’
With these elements in mind, it’s essential for FIs and banks to take proactive steps to bridge technological divides, readily innovate at the front of the curve, and differentiate the offering with customer requests and demand at the forefront.
How to Disrupt the Disruptors
- Offer a great customer experience — Given the proliferation of financial apps available in the marketplace today (with countless more to come..), you must think about the needs of your customer base as they span several software tools. Customers aren’t using your app in a vacuum, so seamless data transfer between your platform and their ERP or accounting programs is key to retaining customers and reducing churn via usability and a demonstrated “customer-first” mindset. As our CEO wrote for Forbes early this year, digital ecosystems are the key to a delightful, flexible user experience and will only grow in relevance/necessity. (read more)
- Composable banking = products that readily adapt to market pressure — In line with the idea of an improved customer experience, being able to quickly build and adjust to market changes is essential to maintaining relevance for your customer base. In our rapidly transforming world where shifts in technology and customer demand seem to change week-over-week, moving quickly is a key differentiator that separates the cream of the crop. In ERP’s post-postmodern era, “composable banking” will be the next trend customers demand. (read more)
- Develop faster — In an ideal world, right? Your development teams are already moving as fast as they can to achieve all of the goals on your platform roadmap while also maintaining the existing systems you rely on. One way to arm developers with the tools and capabilities they need to ship code faster is via data virtualization, which enables teams to build smarter and more quickly. By leveraging technology that allows for greater productivity and reusability, your developers can devote more time to your core product and less to maintenance and building integrations to meet customer demands.
- Modernize your systems & bridge the gap — Fintechs are rapidly working to eliminate the connectivity divide between legacy and modern systems. Why not you? By leveraging prebuilt, robust integrations, you can eliminate the gap and proactively meet customer demands for connectivity. Consider JP Morgan Chase’s Treasury Ignition initiative, where they’ve begun to integrate direct payment with their ERP (starting with NetSuite). This is a compelling effort, but the decision to build in pieces rather than starting from a platform concept risks the broader goals of the initiative. Learn more about product vs. platform.
- Leverage the Install Base — Banks and FIs already have a competitive advantage over fintechs given their large customer bases and years of operational expertise. Use this to your advantage by differentiating your offering further via innovative product development that eclipses your competitors and makes fintech offerings seem a little less shiny. When deciding where to innovate, always think back to customer experience - by building better experiences, you can reduce churn, gain more market share, and increase “stickiness.”
Want to learn more about disrupting fintech disruptors via integration? Get in touch with our team.