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Latest 07 Mar 2019 | Financial Services

How will big financial brands compete with fintechs?

Today, established financial brands are beset by upstart challenger banks offering simple alternatives to throngs of young consumers who don’t share their parents’ affinities for big marble columns. This is the new experience economy, and it comes with an entirely new set of rules.

Banks’ pride themselves in stability. JP Morgan Chase (formerly JP Morgan & Co) was founded the year George Washington passed away. The Royal Bank of Scotland, shortly after Sir Isaac Newton proposed the theory of gravity. But in an age when the human race produces more data each year than in all of prior human history, releases new smart devices yearly, and updates software daily, when does stability become a handicap?

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Fintechs – and now, just techs – are picking banks’ pockets

Banks not adapting to the tech boom is self-evident. In an age where consumers prefer to pay friends by double-tapping their smartphone, many big banks still require they show up in-person to open an account.

Over the past several decades, startups have waged a war of disintermediation against the old financial networks and won lots of battles. Payment apps such as Payoneer, TransferWise, and Stripe (all Conversocial clients) stole market share from banks with a simpler, more convenient service. Investment apps such as Betterment and Wealthfront stole from brokerages by undercutting fees. The biggest financial innovation of this century, blockchain, burst not out of a big bank, but the hacker community. And now, established tech firms are muscling in too.

“Retail banking is being upended not by nimble fintech startups, but by established tech firms,” authors at Bain & Co. wrote in a report last year. Tech is usurping bank and brokerages’ traditional trusted status. US and UK consumers ranked PayPal and Amazon nearly as high as banks when asked who they’d trust with their money. China’s e-commerce giant Alibaba and Japan’s Rakuten already offer payments, credit cards, and loans.

Competition for consumers’ wallet-share is also taking place under a dark cloud. The financial world is on the precipice of the largest wealth transfer in history and legacy institutions that don’t catch up soon will watch things get much worse.

US and UK consumers ranked PayPal and Amazon nearly as high as banks when asked who they’d trust to handle their money.

The impending wealth transfer gap

Over the next decade $30 trillion – that’s with a “t” – of wealth is going to move from older generations as they pass away, to younger ones, reports PwC. In addition to nurturing old, durable relationships with Baby Boomers, legacy institutions must win the hearts of the generations raised through the Great Recession who are most inclined to distrust them.

Bain’s survey found that younger survey respondents are the most likely to try alternative financial products – 73 percent of those aged 18-34 compared to 42 percent of those 55 and older. More than a quarter of US respondents said they’d even try voice-controlled banking through smart speakers such as Amazon’s Alexa.

Younger consumers report that the top emotions that drive loyalty for direct banks are "feeling appreciated, confident, and valued,” according to Forrester. Ninety percent of customers who feel valued will advocate for the brand, and 33 percent report that their top reason for switching banks.

To show that they value consumers, the best thing financial institutions can do is embrace the life-simplifying technologies that consumers crave such as quick, efficient support. Barclaycard, for example, partnered with Conversocial to launch social media messaging support and found that aside from praise from delighted consumers, its average response time dropped by 21 minutes. Agents armed with digital support tools were able to handle more customer conversations at once on whatever channel customers chose with less effort.

Investments in tech pay dividends

There is yet hope for big financial brands. The fee-free payments platform Zelle, which is backed by dozens of major U.S. banks in an effort to compete with fintech payment apps, is succeeding beyond its backers’ hopes. Zelle now rivals the payments app Venmo (owned by PayPal) in transaction volume and processes twice as much money, reported CNBC. “It’s a battleground,” Josh Beck, a KeyBanc analyst, told reporters, adding “The banks do have scale.” With the right application of customer-pleasing technology, Zelle is proof they can compete just fine with fintech.

Providing an effortless customer experience 

Luckily, the tools now exist for any brand to create an effortless experience. Over the past few years, social messaging apps (like Facebook Messenger) have become the dominant way people interact with each other, and in the last 12 months they’ve exploded as customer service channels. With even more social messaging channels opening up for business (including Whatsapp and Apple Business Chat) in 2019, and the rapid development of artificial intelligence, it’s becoming easier and easier to provide an effortless customer experience without needing to just spend more money on agents. Consumers preferences have changed; now it’s time for finance to catch up.

For more about how your brand can drive profitable, effortless and lasting relationships in era of messaging and automation, check out our latest State of Digital Customer Experience Report!

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