Banks & FinTechs: a required Coopetition
Banks and wealth managers must assess whether their service-offering fits clients’ new consumption habits and expectations.
April 3, 2017
Banks and wealth managers must assess whether their service-offering fits clients’ new consumption habits and expectations. The role of banks is meant to evolve, sometimes far beyond the provision of tradition banking services. It is quite obvious that banks won’t be able, and should not, try to deliver all of those new services by themselves. Leveraging the vast FinTech ecosystem by fostering a culture of partnership should be the new norm in banking Avaloq believes. – By Avaloq, published in ITnationMag March 2017
The Challenge of Digitalisation
Digitalisation is impacting all walks of life. From organising travel to reading books or listening to music, clients are being offered more choice, new ways to consume, instantaneous purchase capability, etc…forcing the industries to reinvent themselves. Digitally-empowered consumers now have the possibility to compare a company’s product and service-offering with a competitor’s in one
click, access comparative reviews, read friend’s comments… and decide right away. Consumers therefore tend to be less loyal to a specific brand, fulfilling their needs, on the spot, with the most relevant, best priced, offer. When everything can be compared, analysed, discussed anywhere, anytime, the risk for companies to see their clients switching to a competing provider is far higher than before.
This does not spare the banking and wealth management industry.
Despite the traditional long-lasting bank-client relationship, Banks and wealth managers must assess whether their service-offering fits clients’ new consumption habits and expectations. “ The urgency of acting is acute” says McKinsey. “Banks have three to five years at most to become digitally proficient.”
Call for a new Strategy
Indeed, with an often purely web-based financial services offering, the booming FinTech industry is fuelling the threat of easily-accessible online competition. For example, the ease of setting up an account was cited as THE top reason for using a Fintech by banking clients in a recent EY survey. The research also points-out the access to different products (e.g. crow-funding, peer-2- peer lending…) and services (e.g. video chat with advisors…) and a better online experience as key motivators in the adoption of Fintech services.
On top of this, the other challenges faced by the financial industry and more specifically the wealth management sector should not be overlooked. With historically-low interest-rates, a level playing-field, accrued transparency and ever more-stringent regulations and reporting obligations, not only has the client interaction to evolve, but the whole value proposition and the way it can be delivered is to be reassessed.
Last but not least, the access to accounts for payments initiatives soon enforced by the PSD2 regulation lowers the entry barriers for new service providers, challenging the role and services of banks even more.
Transforming the clients’ life events in banking moments
One initial angle to address this challenge is to look at the bank-client relationship from the client’s eyes. As P. Kotler, one of the founding father of modern marketing, taught “marketing is the Art of putting the Customer at the center of the companies strategy”. Most successful companies such as Apple or Amazon did indeed well integrate this notion and banks could definitely proceed the same way.
By accompanying and supporting the customer life events in the digital era, as maybe a senior relationship manager would do in the physical world, banks will be far better positioned to become the preferred service provider when it comes to financial aspect of life events. Indeed, in every landmark event there are a series of financial factors which are essential to the success of the occasion. For example, when two persons get engaged, they first start thinking about their wedding day and how they want to celebrate. This automatically means also defining and managing a budget, be it already available or to be financed. It also entails planning the wedding, where Project management tools can of some help. Friends might furthermore want to create a money pot to jointly contribute to a gift, etc. Same goes when you want to buy a car or a house. Being able to be, pro-actively, offered an attractive leasing or credit proposal, because you are localised in a car-vendor garage, can be a good opportunity for the bank to support your acquisition plan.
By integrating the financial advice and the financial products sourcing smoothly within the client’ life, banks and wealth managers can add value to ensure the client can focus on their own primary needs while the financial solution is seamlessly proposed during the journey. By adding value to the experience, a financial services provider is in prime position to not only be used for day- to-day banking, but also when the next significant event occurs.
Tapping into surrounding Innovation
As suggested above, the role of banks is meant to evolve, sometimes far beyond the provision of tradition banking services. It is quite obvious that banks won’t be able, and should not, try to deliver all of those new services by themselves. Leveraging the vast FinTech ecosystem by fostering a culture of partnership should be the new norm in banking Avaloq believes. By integrating external providers which focus on certain aspects of life or business processes and package them into their client offerings, not only will banks extend their added-value to clients, but they will also strengthen their relationship by increasing the interactions with them.
McKinsey, in one of their reports, concludes to a net profit for banks when analyzing the potential threats and opportunities of digitalisation. Threats such as innovative new offers from competitors and margin compression are more than over-weighted by opportunities including increased revenue from new products, offers or business models and using data to cross- sell.
By integrating third party digital innovations, such as Fintechs, banks will reap many benefits, among which:
1- Improved client services
Banks can easily aggregate multiple services and products, choosing to become an aggregator and use mainly third-parties solutions, produce them in-house, or combine a mix of the two. They must however carefully consider their value proposition and how they intend to provide these going forward.
2- Differentiate efficiently from competition
The growing number of digital providers in the market is enabling banks to select from a wide choice of niche providers to differentiate their offering. The basis for such partnerships can be based upon some return on investment considerations or on more ‘soft’ factors, such as similar culture.
Adapting to the digital age
Furthermore, by partnering with FinTech companies, Banks might gain a bit of this Digital DNA which is quite different from the so-called Legacy DNA according to Deloitte. “Being digital is significantly different from the traditional way of doing things in the financial sector”. It implies a greater and agile adaptability to change, a collaborative workstyle, a distributed organisational structure, customer centricity and finally an exploratory culture which might seem a bit distant from traditional banking culture. Nevertheless, digital transformation is a must-do for banks, a required mutation in a changing environment.
[toggle title =”About The Avaloq Software Exchange”]
The Avaloq Software Exchange connects providers of innovative software for digital banking with financial institutions that intend to create useful digital experience. The offered software provides additional functionality to support increased client engagement, to ensure consistent client experience and to drive the potential of new business opportunities. All offerings in the Avaloq Software Exchange will integrate to the Avaloq Banking Suite, so banks and wealth managers can shorten implementation projects and achieve faster time to market for new digital offerings.
The Avaloq Software Exchange is open to current and future Avaloq partners including Fintechs and is also available to financial institutions which wish to offer their solutions. The Avaloq Software Exchange offers access to the entire Avaloq community, consisting of more than 155 financial institutions worldwide which manage assets worth $3,900bn using Avaloq solutions. [/toggle]