6 Fintech Strategies to Help You Move Forward in 2017
• Fintech disruption is being considered the fourth industrial revolution.
• A recent study by a global professional services company stated that global fintech investment in the first quarter of 2016 was $5.4 billion — a 67% increase over the same period in 2015.
• The 42 million users of mobile apps for banking are expected to rise to 99 million by 2018.
As we get closer to the third fintech wave, banks and other financial institutions need to embrace a far-sighted approach to digital transformation. However, in their bid to outdo competition, banks have taken a haphazard approach to adopting fintech. This has helped neither the banks nor their customers. It seems banks are randomly exploring every possible category, from mobile apps and cryptocurrencies to analytics and more. Instead they need to focus on areas of innovation that will bring maximum positive impact on their ROI and will help them align their business goals around customer centricity.
The need to create a more targeted, customer-centric and data driven technology strategy is crucial for financial institutions looking to disrupt a market that is already facing disruption. Here are five ideas that can help you put a holistic fintech strategy in 2017:
Fintech Partnerships Instead of Mergers & Acquisitions
Financial institutions weren’t so serious about fintech until 2008, when numerous startups sprang up as a result of the economic slump. With their innovative service ideas and ease of use, fintech startups quickly took over peer-to-peer lending and credit sectors. At the same time payments and fund transfers became easier prompting digital enthusiasts to switch loyalties to fintech startups.
Since then banks and financial institutions have been trying to find ways to deal with the fintech threat. Interestingly, many big banks have chosen the buyout route to beat the disruption wave. However, it’s the mid-tier and smaller banks that are feeling the most heat of this disruption. They cannot afford the luxury of a having their own tech team, partly because of the expenses and partly because they cannot let technology takeover their business completely. To think of establishing/ buying a startup just to have complete hold over it, also increases the risk of slip-ups. Managing a completely different business unit with no experience in it, will shift your concentration from your core expertise and increase your chances of landing in no man’s land.
A better alternative is to partner with fintech experts who can help banks identify the right areas for innovation and translate business goals into technology for them. Additionally, fintech experts can help banks interpret the significance of fintech trends and where they should be putting their technology dollars.
Data and Analytics for Consumer Behavior
Given their history in this domain, banks have a leading edge over startups, in terms of accumulated data. However, its fintech that allows traditional financial institutions to make intelligent use of available data; and create innovative ways of adding more relevant data. In fact, financial services are seeing an explosion of disruption through data, particularly through predictive analysis. It helps understand customers’ pain points and tailor solutions that make your customers lives easier, helping in earning not just their retention but recommendation too.
For example, spending patterns of consumers can be tracked easily these days, making it simple to determine if they are eligible for credits or not. Similarly in insurance sector, data helps in both upselling and cross-selling. Speed and convenience matter most to digital consumers, and data is able to leverage the best options for them in real-time.
Adopting analytics technology can help you sift through useful information and present your prospects with offers that best suit their needs.
Implementing feedback from users will make your bond stronger and aid in customer retention. Customer insights can also be instrumental in identifying new opportunities and redesigning existing products and services. Analytics can also be a powerful tool to reduce operational costs.
In fact, almost every single major decision to drive revenue, to control costs, or to mitigate risks can be infused with data and analytics.
Stay Updated on Regulatory Changes
Regulatory landscape is becoming more stringent by the day. This increased level of regulatory expectations has significant operational and cost impact. Financial institutions are under constant pressure to follow strong customer authentication processes and secure communication guidelines. Moreover, maintaining the security of multitude of online transactions being carried out simultaneously is in itself a major concern for banks. The Payment Services Directive 2 (PSD2), currently underway in EU countries, is predicted to spread its influence across the world. This legislation emphasizes on consumer protection and innovation in the payments space. It largely covers standardization of payments services, clearly indicating that regtech compliant applications will be accepted in the coming time.
Interestingly, Regtech or the combination of regulatory measures and technology, not just enables banks to have a holistic approach to compliance but also provides them with opportunities to reduce cost, bring in operational efficiencies and create deeper prospects for digitization. Additionally, it brings agility to your fintech solutions, thus giving you more organized data sets and removing the gap between tech and non-tech services. Examples of Regtech include applying regulation gap analysis, adopting universal compliance tools, and management and transaction reporting systems.
Think Small to Push Big Changes
Financial institutions have always been technology averse. An approach that eventually gave birth to fintechs startups. Now in order to overcome the technology gap, a big mistake that these institutions are making is trying to become technology wizards overnight. A lot of large and small banks have already burnt their reputation and dollars by investing too early, in technology that didn’t align with their business goals.
The concept ‘Think Small to Push Big Changes’ which was initially shared by Salesforce.com’s CEO, Marc Benioff with Citigroup’s Stephen Bird, has worked magically not just for CitiGroup but for many other financial institutions that adopted this mantra. While Bird narrowed to creating a small in-house team instead of setting up a fintech startup, to push their fintech formula into the market; many mid-tier banks learnt that partnering with tech-firms could be their first small step in addressing the fintech challenge.
Banks can start by understanding how technology can help improve one of their core functions and then move forward from there. However, care needs to be taken to focus on functions that are centered around customer expectations and improve overall operational efficiency of the bank. These small technology steps should eventually help build a tech- ecosystem that is future proof.
Also the burden of legacy software is difficult to replace in one go. The development, prototyping, implementation and integration of new applications takes time. Hence, making a smooth and slow transition will help them adjust better to automation than random, overnight execution of digital applications.
Self-service is Good but You Need Human Consulting too
The Direct-to-Customer (D2C) approach has made consumers more independent. Yet advice of a human expert will always have more credibility and acceptance over that of a robot, who is giving recommendation based on some analytics and pre-fed information. We are still on the periphery of realms of fintech technology paradigm, hence complete automation will not make users absolutely comfortable. A hybrid design that is an amalgamation of collected data and expert advice will certainly have more appeal for the customer.
For example, it is predicted that the current crisis in the world economy will have a significant impact on the education sector in 2017. The inflation is sure to affect student loan applications on a world scale. In such scenarios with so too many options available, a student is more likely to go with the advice of an experienced loan consultant than a robo-advisor whose reliability is relatively uncertain.
Custom Solutions and Personalized Appeal
Digital technologies allow end users to have hyper personalized experiences. And now they expect similar experience from their banks as well. It is no surprise then that personalized solutions created after analyzing customer pain-points have superior appeal over other, often well marketed, ideas. In fact, such expectations have been the primary factor in driving the growth of fintech startups, who not only simplified complex financial engagements with the consumer but hyper- personalized them to address their pressing challenges. In fact, customer –centricity is expected to fuel the next wave of disruption. Therefore, financial institutions need to sync their traditional mechanisms with innovative tech-solutions to cater to the growing expectations of their customers.
Conclusion
The year 2017 is expected to bring more changes in the fintech ecosystem than the last three years together. Banks need to plan a more well-thought-out and regulated approach, if they want to make most of this third fintech wave, especially in the unexplored sectors of lending, insurance and wealth management. The fintech market is about to get more crowded than ever. Implementing strategies that have long-lasting effects will save your brand and keep you in the competition.
Partnerships with technology experts is the most recommended move for this year. Financial institutions will be looking for innovative ideas of fintech disruption. Working with professionals will not only save banks money and time but also aid in understanding what enhances the customer experience. Also data and analytics will boost sales since the sell side will be guiding the buy side from this year on. Jumping any step might land you back in square one. While taking one step at a time will present you as an equipped competitor. This is expected to be the best year for reaping benefits with tech-aided strategies. Are you ready to make the most of it?
