In the world’s fastest moving industry it’s easy to get left behind. As challenger brands, consumer platforms and other fintechs continue their appropriation of customers, [xii] established service providers are seeking new ways to retain market share. The risks present to incumbent providers are outlined in Accenture’s 2019 Global Payments Survey, which reveals that the majority of banks expect to lose $88 billion in revenue in the next three years, principally as a consequence of being displaced by emerging, competing financial service organisations.
Ignorance is no excuse.
In the UK alone, “…total profits for the Challengers increased by £194m against a drop of £5.6bn for the Big Five” [ix] according to KPMG’s Challenger Banking Report. The credit card schemes should not remain complacent since “over half of all online transactions will be made using alternative payment methods by 2021” [x]. While established schemes have certainly demonstrated an ability to be flexible and to capitalise on their infrastructure, legacy payment service providers and banks appear to lack the necessary dexterity to remain relevant, as evident by their declining market share.
OK, so what about outpacing?
Outpacing, or directly competing with, the exploding cohort of Fintech businesses doesn’t seem to be working either. While fintechs enjoy ever larger investment (capital investment in fintech up 120% in 2018 to 39.57bn USD [xi]) and customer numbers, large traditional incumbents are regularly criticized for the sluggishness with which they respond to shifting market conditions, consumer expectations and unique value offerings presented by fintechs [xii]. Moreover, large consumer brands have begun to exploit the tantalising opportunities to ‘cut out’ the once critical services banks used to provide. Dharmesh Mistry, from Fintech Futures, accurately queries whether “banks truly understand the threat of Amazon and others like Uber when it comes to banking?” [xiii] Today’s launch of Uber Money as “the bank account for Uber drivers” should come as no surprise. Uber was always going to capitalise on its network and its foray into banking territory should raise no eyebrows [xvi]. It is possible that similar strategic moves by Apple and others have laid the foundation for second and third iterations, which will inevitably eat up more of the banking value chain and take further market share from the established players.
Do “banks truly understand the threat of Amazon and others like Uber when it comes to banking?”
Consumers the world over have fewer reasons to trust banks, especially after recent financial crises [ii], poor corporate behaviour [viii], clunky user experiences, and increasingly compromised technology [vii]. Meanwhile, the “big techies” such as Amazon and Apple continue to deploy elegant financial services that capitalise on their loyal customer base who possess strong brand allegiance. It is well accepted that the traditional advantages enjoyed by the big banks such as trust, product capability, service and reliability are rapidly eroding.
Government policy and regulation no longer protect the banks as they once did. The incumbents’ competitive moat is scattered with bridges (if not filled up completely). The new European Payment Services Directive (PSD2) has lowered numerous barriers to entry in Europe and with it an influx of well-funded, fast-moving and well-received alternatives [xiv].
Fintechs can respond to market sentiment rapidly and stay ahead of technology faster than the slow moving banks. Unlike banks, fintechs have no “legacy technology” baggage—they are young, fresh, agile and technologically savvy. They possess a culture of innovation and are often staffed by the customers they seek to entice. 80% of banking executives fear that their organisations are at risk of disruption by data-driven competitors.[vi]
When it comes to the banks, the attitude toward embracing and adapting technology required to pivot and compete with the startups, simply isn’t there. Moreover, deeply ingrained operational processes create further challenges.
However, all hope is not lost.
How can high street products and services retain their client base?
The next fintech revolution will not be about competition.
“If you know the enemy and know yourself, you need not fear the result of a hundred battles”. While many fintech companies have “known their enemy” it seems the banks have at times neither known their enemy, nor themselves.
The ability to meaningfully compete and stay relevant during the fintech revolution depends on a key (often neglected) factor: the empowerment of merchants.
Whichever bank can best enable the merchant to consume emerging Fintech solutions will keep their customers. Central to the pursuit of this this objective must be a focus on agile customer relationships and data supremacy. Omni-channel loyalty, visibility and agility across payment types with ‘built in’ or inherent future-proofing features are absolute must haves for any bank serious about staying relevant.
The debilitating disconnect between archaic merchant offerings and tech savvy customer demands is what is driving consumer adoption of fintech services. To address this, banks must look to rapidly integrate and deploy as broad a suite of next gen fintech services as possible to their merchant base. If they can succeed in doing so, banks will not only provide their merchants with fintech services as and when they hit the market, but will retain (and perhaps even increase) their customer base.
Our vision at PayDock is to enable banks and established service providers to capitalise on the fintech revolution, enabling them to retain the loyalty and trust of their existing merchant base. We believe Paydock is the “secret payments sauce” that helps each party ‘play nice’ while ensuring that the end consumer’s needs are always front and centre, no matter their choice of wallet, traditional card, buy-now-pay-later service, subscription service or whatever else might be around the corner.
[i] Mudassir, Hamza, and Kamal A. Munir. n.d. “Traditional Banks Are Struggling to Stave off the Fintech Revolution.” The Conversation. Accessed October 17, 2019. http://theconversation.com/traditional-banks-are-struggling-to-stave-off-the-fintech-revolution-124201.
[ii] “Banks Are Running out of Time to Regain Public Trust.” n.d. American Banker. Accessed October 17, 2019. https://www.americanbanker.com/opinion/banks-are-running-out-of-time-to-regain-public-trust.
[iii] “Regulatory Agenda Updates_PSDII_Lux.Pdf.” n.d. Accessed October 17, 2019. https://www.ey.com/Publication/vwLUAssets/Regulatory_agenda_updates_PSDII_Luxembourg/$FILE/Regulatory%20agenda%20updates_PSDII_Lux.pdf.
[iv] Son, Hugh. 2019. “Bank of America’s Tech Chief Says There’s Nothing New about the Apple Card.” CNBC. March 27, 2019. https://www.cnbc.com/2019/03/27/bank-of-americas-tech-chief-says-nothing-new-about-the-apple-card.html.
[v] “National Banks Closing More than One Thousand Branches in US in 2019.” n.d. Accessed October 17, 2019. https://wisewage.org.
[vi] Bean, Randy. n.d. “How FinTech Initiatives Are Driving Financial Services Innovation.” Forbes. Accessed October 17, 2019. https://www.forbes.com/sites/ciocentral/2018/07/10/how-fintech-initiatives-are-driving-financial-services-innovation/.
[vii] “How to survive bank outages in Australia” https://www.canstar.com.au/credit-cards/bank-outage-australia-survival-tips/
[viii] “NAB takes another billion-dollar hit as royal commission customer-remediation costs double https://www.abc.net.au/news/2019-10-02/nab-takes-another-billion-dollar-hit-customer-remediation/11566792
[ix] Challenger banking report – KPMG 2016 https://home.kpmg/content/dam/kpmg/pdf/2016/05/challenger-banking-report-2016.PDF
[x] “Alternative Payment Methods Are Taking Over Global Online Businesses” https://gomedici.com/alternative-payment-methods-are-taking-over-global-online-businesses
[xi] “Fintech Companies Raised a Record $39.6 Billion in 2018.” 2019. CNBC. January 29, 2019. https://www.cnbc.com/2019/01/29/fintech-companies-raised-a-record-39point6-billion-in-2018.html.
[xii] “The EU and Banks Are Falling behind in the Global Fintech Race: DeVere CEO.” 2019. Fintech Finance. October 3, 2019. https://www.fintech.finance/01-news/the-eu-and-banks-are-falling-behind-in-the-global-fintech-race-devere-ceo/.
[xiii] July 2019, 5th. n.d. “The Amazon-Ification of Banking.” FinTech Futures. Accessed October 28, 2019. https://www.fintechfutures.com/2019/07/the-amazon-ification-of-banking/.
[xiv] “How PSD2 Will Revolutionise FinTech.” n.d. Accessed October 28, 2019. http://www.aon.com/unitedkingdom/insights/how-psd2-will-revolutionise-fintech.jsp.
[xv] Barker, Sam. 2019. “Hipster Banks Monzo and Starling Win Customers from High-Street Giants.” The Telegraph, October 25, 2019. https://www.telegraph.co.uk/personal-banking/current-accounts/hipster-banks-monzo-starling-win-customers-high-street-giants/.
[xvi] “Uber Money Wants To Be The Bank Account For Uber Drivers, PYMTS October 29th 2019 https://www.pymnts.com/news/payments-innovation/2019/uber-money-wants-to-be-the-bank-account-for-uber-drivers/