Branches are dead – long live branches? Neobanks: does the grass still seem greener to customers? Apropos green: where do banks, old and new, stand on impact investing? Finshape’s Gellért Vinnai and Karel Beran have recently weighed in on the trends that are currently shaping the financial services industry. Here’s what they’ve had to say.
After a blip during the pandemic, Forrester says, current account switching is back on the rise. As of 2022, 8% of personal current accounts are held with challenger banks, up from just 1% in 2018. How can and should incumbents respond?
K: I don’t think the competition is between incumbent and challenger banks anymore. It’s between banks who can deliver the value and experiences people crave and those who can’t. More and more incumbents seem to have got the memo and are looking to tackle this challenge head-on.
That said, high service fees and overcomplicated fee structures have driven lots of customers away from traditional banks. They’ve caused a loss of trust that made people eager to jump ship to new market entrants with their free-of-charge services and cushy digital experiences. But this is about to change.
Neobanks are now at a point where they simply have to make money, so they’ve started introducing fees, too. There’s nothing surprising about this, of course – there’s no such thing as a free lunch after all. But this will probably frustrate customers who have made the switch and level out the pricing differences so neobanks and incumbents can compete in a fairer way. And incumbents are ready this time, having invested a great deal in digital transformation and customer experience in recent years.
In the financial services space, empty environmental promises are out, concrete action towards driving the ESG agenda is in, with fintechs positively riding the green wave. Will incumbents be able to keep up with the fintech pack?
G: What we see at incumbents, who make up the majority of our client base, is a growing interest in carbon footprint and sustainability-related solutions. But not only in terms of product offering. Many of them have started measuring how sustainable their operations are and putting greater focus on socially responsible investing. So what they offer as a service to customers is actually only a small piece of the puzzle.
We’ve been asked a lot about our carbon footprint insights solution, especially since we demoed it at Finovate Europe. It shows banking customers how their spending habits impact the environment. Not only that: it also translates CO2 emissions estimates into something that’s easier to grasp, like a trip from one city to another. The banks who are interested in these types of solutions typically have big-picture initiatives in place, too.
K: Traditional banks are a major driving force behind the transition to a green economy. Not only because they have a wider reach but also because through corporate banking they can support organisations in pivoting toward sustainability or actively fund businesses that are leaders in green initiatives. Plus, they can encourage retail customers to make greener choices by, say, offering better mortgage rates on energy-efficient homes.
“One of the overarching trends for 2022 and beyond is how do we take what we’ve done in branches for 50 years and put it back in digital,” Accenture’s Michael Abbott pointed out in a recent interview. What’s your take on digital humanisation?
G: Many say that in-branch banking is dead, but that’s not true. The way I see it, the more services banks can provide through digital channels, the more branch staff can focus on things that matter, like building deeper relationships with customers and becoming their trusted advisors. There are a litany of tasks algorithms can do, like taking care of automated payments or telling people their balances, but this is not one of them. For now, at least. When it comes to long-term or high-stake financial decisions, customers still ask humans for advice.
K: When challengers first appeared, they brought an entirely new concept with them: being fully digital banks. But they soon started opening branches, because they’d realised that this concept simply wasn’t viable. Neobanks that offer low-cost products or basic services for free might be able to get away with only interacting with people through automated means. But the minute they need something more complex, chatbots won’t cut it anymore. The same goes for when they’re facing a problem. Customer experience is forged when something goes wrong, not when everything’s fine.
According to Forbes, consumers find budgeting and tracking tools the least valuable feature in their mobile banking apps. Why do you think that is? How do you think banks can turn the tide on this?
G: We have a great deal of experience with the pitfalls of early money management tools, because we helped build them.
Back in the day, banks poured tons of money into personal finance management applications, and nobody used them in the end. I think the problem was that the services they offered were for bankers, not users. In other words, they reflected how bankers think people should manage their finances in an ideal world, not how they actually do it, much less the challenges they face in the process. No wonder they got over them fast.
What we’ve learned from working on first-generation PFM tools is that it’s crucial to keep our messaging simple and easy-to-grasp. Not to mention proactive and relevant. Automation is also key, as it helps eliminate the need for manual data entry from customers. Finshape’s personal finance management solutions, money and carbon footprint insights included, were very much built with these principles in mind.
K: At the end of the day, customers don’t want tools. They want something to help them understand their finances and make their lives easier. So the first thing PFM tools must be able to do is break down spending patterns and budgeting for users. Then comes offering the right banking products at the right time, whether it’s a loan, investment opportunity or insurance. The most advanced applications include financial portfolio optimisation, including investment rebalancing, debt consolidation or insurance recontracting.
Rohan Amin, CPO at Chase, says more and more customers prefer banking on their own terms, aka being able to switch from self-service to assisted service on a whim. How can Finshape help banks create omnichannel customer experiences?
G: Omnichannel banking is not a question of underlying technology anymore. When the idea of omnichannel first started to spread, banks had to overcome major technology roadblocks. Most of them used dozens of platforms and backend systems that didn’t play well with each other. This made switching between them virtually impossible for customers. Now that they’re more evolved, the challenge becomes designing processes that empower financial institutions to respond to customer needs whenever and wherever they arise.
K: Today’s financial services landscape is very competitive. There’s an ongoing bundling of products and services to create new value propositions for customers and operating models for distribution and delivery. Having a digital banking platform that enables fast-paced innovation is a must. Banks are transforming into agile organisations to speed up development and break down operational silos, and their digital ecosystems can either become a bottleneck or a major competitive edge. Finshape’s solutions are here to offer them the latter.
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