What Financial Services Firms can Learn from Big Tech Customer Experience
By Madhur Jain, Senior Vice President and Heads the Global Solution Consulting Team
The move of Big Tech companies into the financial services sector brings both risk and benefits to consumers and banks alike. Technology firms such as Alibaba, Amazon, Facebook, Google and Apple have grown rapidly over the last two decades. With a data centric business model focused on direct interactions with a large number of consumers, these firms are using their power to venture into the financial services sector, offering payments, money management, insurance, lending and much more.
For these firms, financial services may still only be a small part of their business globally (11% according to Leonardo Gambacorta, head of innovation and the digital economy at the Bank for International Settlements) but the potential is huge given their size and customer base and they will continue to fuel rapid change in the financial industry. With their fiscal capital, customer data, strong brand loyalty and presence in consumers’ everyday lives, big tech companies have the firepower to drive innovation, and in doing so, pressure the traditional banking model further. So how can banking as we know it, survive the onslaught of tech companies and what do they learn from them?
The answer lies in co-operation and partnerships
According to a KPMG report, 26% of financial institutions are already partnering with one or more technology giants, and an additional 27% report planning to forge such partnerships within the next 12 months.
Big Techs derive their strength from the fact that they have deep expertise in analytics, big data, AI and creating customer centric experiences, which in turn help them to develop services that reach their existing users in no time through their channels.
But the thing to note is that the banks have an advantage in a few areas over the Big Tech companies – their ubiquitous presence in every aspect of life of its consumers (compared to siloed but in depth experience of every individual Big Tech company); the consumers’ trust in banks for all financial matters and the vast experience they have in the industry.
This scenario makes for many opportunities of partnerships between banks and Big Tech companies globally for example, Apple recently launched a credit card with Goldman Sachs. Last year, Australian lender, Westpac partnered with Assembly Payments to launch a payments platform for its business clients. In China, tech companies are influencing how consumers spend their money with mobile wallets from Alipay and WeChat Pay. With the drive to adopt Open Banking by banks and fintechs, the potential for partnerships and innovative product offerings are becoming increasingly possible.
Embracing Open Banking
Open Banking helps banks advance their features to meet consumers’ changing needs, enhance their revenue and at the same time increase customer engagement using differential and personalized experiences. By treating personalized propositions as a commodity, banks can begin providing the personalized customer experience that helps retain customer loyalty. Banks can also go beyond their typical scope, increasingly becoming links in the value chain, for example, to help customers buy a vehicle rather than just give the loan. Leveraging customers’ data with the offerings of an agreement will give banks the opportunity to build business beyond their traditional financial products and actively look at integrating third party trusted products to deliver value to the customer.
Partnerships like this can help commercial banks become more inventive and nimbler, digitizing their processing, systems and customer experiences to create new ways to meet the needs of their customers and form new income streams. With Open Banking, the banks’ partnership with fintech companies and other third-party providers is driving technology innovation to help traditional banks stay atop in today’s digitally-centered world.
Winning the digital race
As banks embark on their digital transformation journey in an effort to hold onto market share and capitalize in the digital economy, the industry will need to reinvent itself, driving the creation of more customer oriented, hyper-personalized services. Banks will increasingly become links in the value chains that will also contain non-financial services, meaning suppliers will join their digital ecosystem to offer a one shop stop for customers banking and other needs.
A fundamental change in the financial services sector is taking place as banks begin applying strategies to stay ahead of the curve. Financial institutions are prioritizing digital transformation of their ecosystems to achieve optimum efficiency and customer-centered experiences. Open Banking is quickening this move, making banking truly digital by establishing an interconnectedness that we currently see in the ecommerce industry.
With their size, analytics capabilities, capacity to appeal to huge, loyal userbases and revenue models, tech giants are strengthening their position in typical banking services at a fast clip. The competitive challenge that tech companies bring to the financial services sector presents a threat and/or an opportunity for banks to defend their market share by transforming their digital capabilities to deliver superior digital services that satisfy the demands of increasingly connected customers with growing expectations.
In a data-centric and customer-centric world, banks need to transform and work hard to retain customer loyalty and market share if they are to survive. As more technology firms move into financial services it could make the sector more dynamic and efficient, but it also introduces risks for existing players. By embracing new technology, adapting to customer’s needs and learning how the tech giants are owning the customer experience, traditional financial services firms can transform, or they face the risk of becoming extinct.