The recent edition of MoneyConf, a sibling of the Web Summit, focusing on the future of finance, attended by some of the biggest banks and tech firms, has brought new views on the future of banking.
Front-end fintechs bet on user experience for massive adoption and use banks as a reference point
For Valentin Stalf, CEO of Number26, a Germany based startup, representative of the trend of friendly and mobile banking, in the future, the user experience will be much more important than creating a specific financial product. This is why Number26 is centred on the customer relationship, which is defined by the mobile experience. The approach seems to pay off as the company with over 200,000 clients in 8 European countries has just raised a $40 million Series B investment for further growth and obtained a full banking license. He also pointed out that in Europe the user experience gap between fintech and banks is still widening. He also claimed that Number26’s approach, consisting of continuous data collection and adjustment, maintained the user experience of Number26 far better than that of traditional banks. The other advantages are cost reduction, agility, scalability and possibility to function as a platform for integration of other fintechs’ products. One such example is the integration of Number26 with TransferWise, an international money transfer platform.
Taavet Hinrikus, CEO of TransferWise, added that the cost competitiveness of his company relied on applying recently developed technology, which eliminated the need for supporting a branch network. He also drew attention to the paradigm shift in the transparency of transfer costs. Contrary to the typical fee maximization philosophy of the banks, which tests how much pain can the user bear before he or she stops using the service, the likes of Transferwise think how small a fee is still sustainable from the business perspective, assuming user number maximization.
The most advanced banks use fintechs as sources of innovation and of understanding of consumer needs
Neal Cross, Chief Innovation Officer at legacy Singaporean DBS Bank, the largest bank in South-East Asia, representing the banks’ perspective, agreed that digitalization is a chance to completely reinvent how finance is done, but argued that fintech was not reinventing finance, but instead was making the experience better, taking out frictions and costs. According to him, the divergence between the fintech experience and the bank experience was closing, at least in Asia. He asked, “with similar experience and cost would you prefer to stay with your bank or use several different fintechs”? Banks still have bigger operational costs and spend a lot on new product development, therefore licensing a product or partnering with fintechs might help the bottom line.
One example of such a behaviour is that of BBVA. Carlos Torres Vila, the CEO of which, remarked that the business and technology acumen are pretty well covered by the bankers, but that to understand how humans see things and make decisions required different skills, which are not abundant at a typical bank. Hence, the importance of acquisition of external innovative startups in the transformation of the BBVA business towards better customer service.
Neal Cross, underlined that the biggest challenge of the banks was their ego. He claimed that the banks which can reduce their ego, learn, partner and execute well will survive.
The bank-fintech dichotomy will gradually disappear
In our opinion, the distinction between the legacy banks and the fintechs will gradually disappear. On the one hand, we could observe the progressive extinction of the banks which will not question their egos, and resist to build products and services around customers’ need. Other banks, to be more customer-focused, will become platforms integrating new services offered by fintechs, as exampled by BBVA’s acquisitions. Many fintechs, on the other hand, will need the infrastructure and the funds from the banks to develop themselves, an example of which is the $128 million investment of BBVA in UK’s startup Atom Bank.
Consequently, the most likely scenario is a convergence of banks and fintechs, which will inevitably leave victims among the unprepared on both sides.
The biggest winner of the convergence should be the customer, for whom the future financial services will be much closer to the job he/she expects to be done (not necessarily only cheaper and faster).