How fintech is leading the change in relationships between consumers and banks
The traditional banking system was, for far too long, the only option open to consumers and businesses. With no form of competition, apart from against each other, the banking system had a complete monopoly. With this monopoly, a couple of things crept in: complacency and laziness. Banks didn’t need to try and please customers as they had nowhere else to go. These financial institutions did not need to move with the times, as they were the only available option that the world had. Then along came fintech.
While it could be argued that fintech has been around since the late 19th century, what we know as fintech is a more modern phenomenon. It is one that really began to take off around 2008, as the traditional banking system fell to its knees as a result of the global financial crisis.
What was seen in the fintech offerings from 2008 onwards, was a new approach to banking. As we shall see, this is an approach that has garnered huge popularity, and positioned fintech to enjoy a bright, and profitable future.
What is fintech
A combination of the words ‘financial’ and ‘technology’, fintech is a term used to refer to tech that is created with the aim of automating and improving the delivery of financial services and products. There is a great focus on improving the user experience.
fintech exists to assist consumers, companies, and business owners alike. It allows for finances to be easily managed, as well as business processes, by taking advantage of all that software has to offer. The most likely devices that you’ll use to access fintech company offerings are a smartphone or a tablet.
Although fintech, as we now recognise it, began to take off in the late 2000s, it is fair to say that it took its roots back in the late 1990s. This is when the use of the internet was becoming more widespread and consumers were starting to experience all that e-commerce had to offer. While fintech was used behind the scenes to process payments and to keep them secure, what we have seen since is that the tech is appearing front of stage and bringing an array of benefits.
What is digital banking?
We have fintech to thank for the rise of digital banking. This is a term that covers both online and mobile banking. Its growth has meant that there are some consumers who have never had the need to step foot in a physical bank.
With online banking, customers are able to log into their accounts via a computer. It allows them to check their balance, send money, pay bills, and even apply for loans. While online banks may vary in terms of quality, the best allow you to carry out every possible banking function.
Mobile banking follows the same principle. The difference is that your account is accessed via an app on either a smartphone or tablet. These apps add to the customer experience by making banking convenient: you can perform any banking task while on the go.
The Covid-19 affect
While fintech companies were already experiencing significant growth, the pandemic came along and pushed things along even further. While swathes of industries buckled under the pressures caused by the pandemic, fintech was one of the sectors that thrived. Reports show that during the very first few months of the pandemic the use of mobile banking increased by up to 50%. The report also suggests that post-pandemic, this is unlikely to wane.
Not all countries were afforded the same luxuries. When you consider those where the financial systems are still set up in such a way that physical attendance at a branch is required just to withdraw funds. Countries that lack the infrastructure to carry out digital payments saw the population being left with no choice but to risk exposure to the virus that was sweeping the world.
Covid-19 perhaps demonstrates the advantages of being able to tap into all that fintechs have to offer. It also went to show what a truly cashless society could look like.
A new approach
Covid-19 also saw many questioning certain quirks of the financial systems. One thing we perhaps all did much more of during the pandemic was buy online. One company that certainly benefited from this was Amazon. With profits seeing a 220% boost, the pandemic certainly created its fair share of winners. However, what does Amazon have to do with fintech and changing relationships with customers? Let us explain.
Fintech allows certain customer demands to be met. Here we’re thinking about the likes of a need for efficiency, speed, and an all-around great customer experience. This is just what Amazon offers its customers. the purchasing process is frictionless and done with ease.
So, why is it that retail giants can process a payment in seconds and have goods with you within 24 hours, while banks still require a face to face appointment? Surprisingly, many traditional banks still insist on this when it comes to opening an account, especially a business one. Customers are left wondering how organisations can process billions of dollars of orders remotely, while a traditional bank can’t even complete a basic function in such a way.
That’s where fintech banks make a difference. With no physical locations, everything is handled online and accounts can be opened within a matter of minutes, rather than the weeks and months that business customers can face at traditional banks.
How fintech has reinvented customer service
Given the time that the traditional banking sector has had to get to grips with customer service, you’d expect them to have had it pretty much mastered. However, the years of dominance seemed to lead to nothing more than taking the customer for granted. It is difficult to argue the case for traditional banks and say that they are customer-centric. Often, the service offered is on terms that suit the banks and do little to assist a customer.
The fintech approach is quite different and has shown customers that banks can, and do, care. They have made themselves contactable 24/7, they have sped up the process of opening an account, and they have mastered the know your customer process so that it is a painless experience.
Perhaps the biggest change seen by fintech companies is that they use technology to truly know their customer. There is no one size fits all offers and promotions. Instead, these are tailored to the individual and customers are shown that they all count and are all valued.
Smart approaches to previously complex problems
The traditional banking system saw certain problems exist almost as long as the banks themselves existed. What new fintech banks have done is to analyse these issues and come forward with smart solutions. This has seen them step in a fill a void that traditional banks have long left and seemed to have no interest in filling.
While such solutions are great for customers and bring them into the fold so to speak, they are also great for fintechs themselves: the marketplace places that they are entering are huge in terms of number and significance. They give a solid base that allows for rapid expansion. Just two of the areas being focused on are:
- Solutions for those with poor/no credit history – rather than excluding significant portions of society, FinTech has found ways to still offer services to those with poor, or no, credit history. Rather than relying on usual credit checks, these companies are tapping into new data to make informed lending decisions
- P2P marketplaces – these marketplaces have been created to assist customers to secure loans when they are unable to via traditional methods/sources
These two examples both show how fintech can be seen as reaching out to those who have been left out in the cold by traditional banks. When this approach is combined with the levels of customer service that are offered, it brings a whole new banking experience.
Traditional banks have existed for centuries. Had they embraced the change as it was coming about, they may well have staved off the competition being presented via fintech companies. Instead, what we are seeing are customers making the move away from these traditional banks having become frustrated with their workings.
The reality is that traditional banks would now need to undergo radical change in order to mount a fightback. The reality is that this has perhaps already been left too late to be effective.
What fintechs have to offer is all of the services that traditional ones do. However, there are more advanced features and progressive ways of doing things. With fintech companies, the customer is the heart that all that is done. It is the needs of the customer that drives forward the developments in technology that lead to an even better experience. Now that consumers have experienced this new approach, who would ever want to go back?