Innovation | 07.17.19
Fintech Expert to Bank CEOs: You’re in the Digital Driver’s Seat
In a technology-driven marketplace that views data as capital, financial institutions are sitting on a virtual goldmine, according to author and futurist Scott Snyder.
Head of the digital/innovation practice at Heidrick Consulting and co-author of a forthcoming book, “Goliath’s Revenge,” which is about established companies doing their own digital disruption, Snyder led a three-hour fintech-focused workshop at BISA’s annual CEO Retreat in Philadelphia last spring.
After exploring various banks’ mistakes trying to capitalize on fintech – poorly conceived acquisitions done just to put something on the board; overly cautious organizational fence-offs with innovation shunted off; less than fully-cooperative tendencies when third-party partnering – Snyder concluded his remarks with a walk-off declaration that must have stirred the imaginations of the industry leaders in attendance.
"You have one of the biggest opportunities in all of business today," Snyder told attendees. He was talking about proximity to customers' digital footprints.
Creepy Versus Cool
It’s no secret the average U.S. consumer spends the lion’s share of his or her “screen time” on social media platforms. Turns out that, in terms of digital destination time expenditure, financial institutions rank second, Snyder said.
This has enormous implications. Customer data – preferences, tendencies and patterns – can all be harvested and, with new advancements in data analysis, used predictively to foster more customer engagement. Effectively harnessed digital traffic flow can give banks a leg-up reaching customers where they are (as opposed to, say, trying to reach them blasting out emails touting up a new app that no one will ever download).
"You collect all this valuable information," Snyder said. "Startups would kill to have this data. Now, the challenge is: how can you take advantage of it?"
Transparency Is Crucial
Meeting that challenge will depend on how transparent banks and credit unions are willing to be. Obviously, financial institutions need to put the security of customer data at the top of their priority lists.
But how organizations treat client data goes beyond just having confidential policies, cybersecurity measures and segregated silos. Disruptors entering financial services have been able to stake out a spot between prudence and overkill, with the linchpin being some degree of transparency. In years to come, brazen new companies are bound to get this wrong, but established players right now have a chance to get it right, provided they let clients know exactly how they will use their data.
"If you can create something that truly solves a problem, and you keep the customer in the loop, they are willing to help you,” Snyder explained. “They will share data. But you need to give them something of value in return."
For example, Silicon Valley startup Robinhood has wowed a new generation of smart phone-wielding investors with commission-free crypto, equity and ETF trading. Robinhood had a slight public relations toe-stub when its (perfectly legal and common, yet controversial) practice of routing trades and accepting payment from execution venues – affiliated with high-frequency hedge funds – came under media scrutiny. For the moment, though, millennials love the free trading and are seemingly unconcerned about behind-the-scenes order-flow complexities.
There's a larger point in all of this – the need for an organizational commitment to being an open book about what you are doing with sensitive customer information. This is the key to unlocking the great digital innovation opportunities in the decade ahead, Snyder stressed.
Established Goliaths eager to snap startups’ slingshots and return fire with bazookas will need to unabashedly put their crown jewels (customer data) on the table, and not just for the sake of cashing in, but to genuinely solve customer problems.
No one is suggesting peddling client data; indeed, certain information can never be shared. But banks have more flexibility when it comes to using aggregated, unstructured data, combined with new data science tools and machine learning techniques, to radically improve customer experiences.
New fintech players, such as Marcus, Goldman Sachs' no-fee personal loan platform, have encroached on traditional branch-based banking turf by making the application/approval process easier and faster.
Meanwhile, Cross River Bank, a state-chartered bank, is an example of an established-player innovator, creating a banking-as-a-platform service that other non-banks can tap to offer banking services.
Mobile Messaging Shifts
New fintech companies and financial services/fintech alliances are accelerating the pace of change, experimenting, fast tracking, beta testing, scrapping and going back to the drawing board, all the while raising the bar on what customers are going to come to expect.
One example of a company that makes it seem like we are truly living in a remarkable age is moBILLity, which helps consumers save money on their recurring bills by using robots to call companies and dispute overcharges.
Consumers may hate getting robo-calls, but who wouldn’t want to utilize them to turn the tables on a rental car company that accidentally billed you for an extra day? KyoLAB, meanwhile, helps regulated financial services companies retain electronic communications, opening the door to archived, auditable and mobile messaging.
Credit unions and community banks probably think they don’t fit in on WhatsApp and WeChat, but indeed they do if by being there they make someone’s life easier. Why should a fintech startup have the corner on game-changing services?
One of the great things about banking institutions is the unique role they play, intertwined as they are in the real and digital lives of their customers. In being right there in the mix, banks are gleaning unique, valuable knowledge on what is needed most, at the right time, and how to provide it.
One noteworthy example of a bank that has achieved transformative fintech success is NBKC Bank in Kansas City. The bank reinvented itself as an online mortgage lender. And while Quicken Loans still dominates, NBKC has made a name for itself (on Zillow’s customer ratings boards) delivering a satisfying digital experience, mostly by figuring out how to maintain a single point of contact throughout the entire process.
NBKC is also building a conversational banking app to communicate with clients via messaging platforms like WhatsApp and Facebook Messenger.
Brand new innovative services are a natural extension of what banks have always done. It’s expected, Snyder said. Innovating is everyone’s job. Tap every bright brain in the organization. Bring clients along for the ride.
“People don’t sit around and think about which financial products they want to buy,” Snyder said. “They have problems. They think about how to solve them.”