Advice for banks how to dive through the FinTech revolution: Consumer Banking (tech reloaded)
By Thomas Labenbacher, partner of Life.SREDA VC
I first heard Consumer Banking 15+ years ago, when I started with GE Capital Consumer Finance. The majority of people are using Retail Banking instead of Consumer Banking. Consumer Banking is defined as the provision of services by a bank to individual consumers. That needs to become the vision of bank again in order to navigate through the digital transformation from traditional banking to digital banking
Why it has been called Consumer Banking at GE Capital? It was not important from what business line and channel the customer was acquired, it was important to manage the customer relationship across all channels and cross-sell/up- sell the customer with other products.
More and more banks understand, that customer behavior and customer needs, as well as the market is changing and the technology is enabling banks to keep up with their customers. That’s not a single step from traditional banking to digital banking, it is a mind-set shift and the organization has to cascade down, with the customer in the centre.
The voice of the customer is becoming important again. 15+ years ago, the Internet changed banking and today the FinTechs are pushing the banks to rethink their models, offerings, operations and existence. Banks will get more and more pressure from the markets to move quickly in to untapped waters, the digitization of the banking industry
Forget distribution channels, follow the customer’s digital footprint. It is difficult for banks, as there was no need to do so.
Customers had to come to the banks anyway. FinTechs offer services, which are unbundling banks services and competing with them. Most of the time competition between banks and FinTechs did not happen due to the fact it takes long to build a B2C service. Further this year at Money 2020 in Copenhagen, we have been hearing co-option or maybe collaboration is were we are heading, when we speak banks and FinTechs.
We see FinTechs cooperating with banks and at the same time banks are looking for FinTechs in the market to integrate their service in their online presence. Banks are opening their systems and in some regions are forced to do so; it becomes obvious that the collaboration is the only way forward.
How the cooperation and the business model for both parties look like? Is it a B2B service FinTechs are offering? Are they going to be locked in by one or few banks? Exclusivity versus scale and return on investment. Is it branded or is it white label?
Is it reselling or bundling for the bank? And, the risks and the costs a bank has to take to monitor each FinTech partnership?
What would happen if a FinTech becomes to big and applies for it’s own banking license? – we have seen recently with N26 and Zopa. Kids are start running and leave the nest. What would happen if the bank’s customers don’t like the FinTech service?
Can banks test the service in a sandbox and can a bank do AB testing?
And, what does this all mean to the customer? How my bank can assist me at my point of interacting, anytime, 24/7 and real-time. Are banks managing the interaction and relationship with the customer effectively? – in the new digitized world, banks need to have the right organization to do so. No banker was ever confronted with multiple technical interactions, direct and indirect and the challenge to manage them. Customers do speak to each other, to merchants and to banks. How can banks in such an ecosystem, be visible – capable offering the customer what he needs and being invisible – collecting data to offer the customer products before the customer know. Certainly, this can be done only with and through FinTech services. FinTechs can be the distribution side of banks in the near future, offering value and service enhancements.
Will FinTech services end up being another department to better follow the customer journey? – if yes, than we see both parties moving together without borders. We will see platform provider enabling the merge, legally, commercially and operationally.
Cause, cooperation is not just integrating an API and all is good. Both parties need to utilize the unique capabilities and leveraging on the partnership.
By utilizing a platform that is easily accessible to all participants, it becomes easy to test new ideas for services quickly and make offers accessible to a large group of already qualified potential customers. Instead of cannibalizing each other’s business, various participants can now create value together and share the resulting revenue in order to prosper as partners instead of perishing as competitors.
Banks are challenged to drive the adhesion of interests, as well as take the responsibility to manage the business partners.
Although it is difficult these days to find the right partner, as so many want to be in FinTech and get rich. Therefore platformication need to be a filter, absorber, enabler and supporter to efficiently manage the effect for a better customer service.
Consumer Banking in a digitized world means, interaction every day. A customer on Wechat stays 4 hours a day. Wechat have so many data, that they can predict any next step a customer is up to. Data analytics companies have a great chance to be selected by banks to join first the collaboration space. Banks are at the beginning in a digitized world to manage data properly.
Do we need branches in Consumer Banking? – maybe, it depends on the country and the product. A branch in the digital world has the purpose of trust and brand building. How each bank is using the branch for interaction is part of the overall vision and strategy how to follow the customer and how to serve customer needs.
The banks have to decide what business model they would like to be in: digital banking, marketplace banking or manufacturer.
Second, they need to understand how to collect data, analyze and use.
Thirdly, follow the customer and be visible when needed. And, last but not least team up with IT service companies to further develop the API ecosystem and service platforms to take advantage of not having produced the full value chain in house.
“Consumer Banking – tech reloaded”
Thomas Labenbacher is an Ex-Banker, FinTech expert and serial entrepreneur, i.e. having been involved in Fidor Bank from the beginning. He is partner of Life.SREDA VC firm and Chairman of the Financial Services Club CEE.