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Open Banking Fintech Partnerships Required For Better CX

With a world that is becoming more complex, today’s consumer is seeking organizations that can simplify their lives in a manner that is both personalized and seamless. The fewer steps it takes to achieve any objective, the better. The consumer also is growing increasingly aware of what is possible with modern technology, and they are moving established relationships to those organizations that can provide the best overall experiences.

Over the past several decades, traditional financial services providers have made very few changes to the products and services they offer or the manner in which they deliver them. Despite the introduction of credit cards, ATMs, telephone banking, online banking and mobile technologies, most banking innovation has been incremental in nature … usually focused on reducing the cost of delivery as opposed to improving the customer experience.

Most banks and credit unions have been unable to deliver a seamless consumer experience due to the continued presence of product and data silos, decades-old infrastructure, and a risk-averse culture that produces only incremental innovation. This has created an open door for startups and established non-financial competitors that can leverage data, modern technology and an agile mindset to deliver enhanced experiences.

“Improving the customer experience of an obsolete product line is like installing an escalator on a horse buggy,” states Ron Shevlin, Director of Research at Cornerstone Advisors and weekly contributor to Forbes. He continues, “Sure, it provides added convenience, but is it the best use of investment dollars? Today, consumers are accessorizing their traditional accounts with digital innovations from non-traditional players, including new savings tools, on-demand borrowing solutions, bill analysis tools, dispute resolution services and more.”

Beyond accessorizing existing accounts, an increasing number of consumers are ditching their legacy banking relationships altogether. As some of the larger fintech organizations expand their product offerings and build consumer trust, more disintermediation away from traditional financial organizations will occur.

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Experience Gap Widening Between Legacy Banks and Fintech Firms

The way the majority of traditional financial institutions treat consumers and the experience they receive from fintech firms and big tech organizations underscores the differing approaches each side takes. The higher interaction friction, less intuitive design, lack of omnichannel solutions and poor integration with outside players negatively impacts user satisfaction metrics at legacy organizations, according to Capgemini’s Voice of the Customer 2020 survey of more than 8,000 consumers across 20 countries. The experience gap is the biggest with the more complex or high-involvement areas, such as applying for a loan/mortgage or problem resolution.

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A bigger issue may be that fintech firms and challenger banks are providing lower friction as well as a more positive experience in the initial stages of the banking relationship, such as during account opening and when gathering initial information. This is why so many mid-sized and smaller organizations are generating fewer new accounts from digital consumers – there are fully digital options where no branch interaction is needed.

To effectively compete, banks and credit unions must provide seamless solutions with intuitive design that integrates into a consumer’s daily life. This is made more difficult because of product silos, decades old infrastructure and traditional mindsets. A viable option is to collaborate with the fintech and big tech organizations that have already built solutions that consumers are moving to.

“In an era of rising consumer expectations, banks are challenged to offer their customers a consistent engaging experience across all channels – branch, web and mobile – and evolve from the Open Banking approach towards an Open X mindset, where banks and new non-traditional players join forces to deliver banking services that integrate with digital experiences,” said Anirban Bose, CEO of Capgemini’s Financial Services Strategic Business Unit and Group Executive Board member. “Banks that identify their top capabilities and then seek partnerships with fintechs and other business sectors to enhance their offerings in other areas will be the most successful.”

Fintech: Threat or Collaboration Partner?

Banks, credit unions, non-traditional financial services providers, government agencies and big tech firms continue to debate what the banking ecosystem of the future will look like. Most believe that some sort of partnerships or collaborations will be needed to move forward successfully. The question is, which organizations will combine thought leadership and distribution capabilities to deliver next-generation solutions that will make the daily lives of consumers better?

More than ever, many traditional financial institutions believe fintech startups could be collaboration partners, short-cutting innovation efforts and providing enhanced digital solutions. But is the desire to partner coming too late? Evidence indicates that the strength of fintech firms and challenger banks may be greater than ever, providing some firms confidence that they can “go it alone.” For instance:

The World Retail Banking Report 2020 from Capgemini outlines the increasing acceptance of fintech and big tech offerings.

  • 75% of tech-savvy consumers are currently using at least one financial product from a big tech provider.
  • The top three reasons customers say they use non-traditional players are lower costs (70%), ease of use (68%), and faster service (54%).
  • More than 80% of consumers likely to switch financial providers are currently using payments, cards, or banking account products from a big tech firm or challenger bank or are likely to do so in 3 years.

With regards to using partnerships or collaboration to build real-time contextual solutions, traditional banks have looked to startups for their speed, innovation focus and focus on the customer experience. Fintech firms look to traditional financial institutions for their large customer bases, access to capital, brand recognition in the marketplace and understanding of compliance and regulations.

Unfortunately, the movement to partner with fintech firms has been sluggish or non-existent at traditional banks and credit unions. According to Capgemini, only 33% of banking executives say they have effectively implemented Open Banking.

A question to be asked: Can banks and fintech firms even work well together? “Startups and big companies live in very different world: They hire people differently, they operate differently,” states Serguei Netessine, Wharton Professor of Operations, Information and Decisions. Netessine has been looking at the the startup revolution for years, having co-authored a report that examined how the world’s largest companies were dealing with newer, more agile firms.

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The Open Banking Experience Opportunity

According to the Capgemini report, “To succeed, banks and credit unions need to strategically choose partners that complement product portfolios, enhance service delivery, boost sales – and work collaboratively. By leveraging effective collaboration while also maximizing traditional strongholds, banks can create a powerful advantage in the Open Banking era.”

More important than simply using Open Banking as a new product extension opportunity, Capgemini suggests that organizations need to focus on how potential partnerships can enhance overall customer experiences. This form of collaboration could provide opportunities to all ecosystem participants, provided that both traditional and non-traditional firms play to their strengths and are ready to collaborate.

Jim Marous is co-publisher of The Financial Brand, host of the Banking Transformed podcast and owner/CEO of the Digital Banking Report, a subscription-based publication that provides deep insights into the digitization of banking, with over 200 reports in the digital archive available to subscribers. You can follow Jim on Twitter and LinkedIn, or visit his professional website.

This article was originally published on November 4, 2020 . All content © 2020 by The Financial Brand and may not be reproduced by any means without permission.

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Fintech is having a big impact on banking — and it’s getting bigger

Among the many services they offer, banks are first and foremost money depositories — convenient places to stash and retrieve cash. These days, with all sorts of ways to navigate the digital space, banks and financial institutions are making wealth access easier than ever. From entirely mobile banks and payments between friends to AI-enhanced chatbots and anti-money laundering software, these fintech companies and services are bringing banking into the digital age.

Fintech in Banking

Artificial Intelligence Virtual Assistants

Mobile banking is flexible, easy and a time-saver. Some banks go above and beyond, offering virtual assistants to make the mobile experience even simpler. From text- and voice-enabled payments to fraudulent alerts and credit score notifications, virtual assistants are already enhancing the relatively new world of mobile banking.

Ally Assist

What it does: Ally Assist is the virtual assistant in Ally Bank’s mobile banking application. Ally Assist is both text and voice-enabled, meaning users can simply speak or text with the assistant to take care of their banking needs. Some of the tasks Ally Assist handles include payments, deposits, transfers and detailed information requests. The assistant learns from users, anticipating needs and recommending solutions.

Impact on banking: Ally Assist is another step toward automating the simpler aspects of customer service.

What it does: Eno is Capital One’s intelligent assistant. The virtual helper lets users text questions, receive fraud alerts and take care of tasks like paying credit cards, tracking account balances, viewing available credit and checking transactions, all within their smart phone’s message application.

Impact on banking: Eno communicates like human users do (emojis and all) while keeping information safe and easily accessible. It also allows users to ask basic questions and find quick information on the fly without having to log into their mobile app.

Erica

What it does: Erica is a mobile assistant application from Bank of America that lets users view bills and payments, transfer money, get regular FICO Score updates and receive breakdowns of recurring monthly payments like parking passes or streaming services.

Impact on banking: Erica keeps users aware of changes in their finances while taking care of simple tasks like sending money or paying bills.

Fraud Detection & Security

In an online-centric age rife with innovations, hackers and identity thieves are constantly at work scamming and phishing their way into bank accounts and compromising personal information. Some anti-fraud efforts, like the EMV chip on credit cards, have cut down on card cloning, but there’s still a long way to go.

These companies, among many others, are striving to make mobile and online banking safer.

Feedzai

Location: San Mateo, Calif.

What it does: Feedzai is a software company that offers end-to-end fraud-fighting and anti-money laundering solutions to retail banks. Using machine learning and risk management tools, Feedzai provides banks and their customers with multi-channel fraud protection for issues like account takeover, transaction fraud and new account verification.

Impact on banking: A retail bank implemented Feedzai to streamline risk assessment of new account applications. In the past, this retail bank denied more than half of its received applications because it was unable to efficiently assess them. After teaming up with Feedzai, the bank increased approvals to over 70% while avoiding an increase in fraud loss.

InAuth

Location: Boston

What it does: InAuth is a security platform that provides mobile risk and fraud solutions for industries like banking, insurance and e-commerce. For banks specifically, InAuth helps secure mobile applications so customers are less susceptible to fraud. The platform provides tools like two-step authentication, device integrity screening, geo-location lookups and transaction monitoring to enhance mobile banking, increase security and reduce fraud losses.

Impact on banking: InAuth’s platform makes it easier and more secure for customers to apply for various bank programs online. Its device intelligence identifies devices that attempt to open accounts or enroll in banking programs, stopping fraudulent activity before it can cause damage.

Simility

Location: Palo Alto, Calif.

What it does: Simility is a big data company that combines machine learning and manpower to detect and curb fraud in digital banking. The company’s solutions detect both payment and new account fraud while providing custom fraud solutions.

Impact on banking: A mobile-focused bank implemented Simility to keep its fraud rate from increasing as the company grew and signed new cardholders. The company’s previous anti-fraud system required many manual reviews and was unable to link users through identifying information like phone numbers and addresses. With Simility, the bank reportedly was able to predict 85% of historically approved fraudulent transactions, and manual reviews were decreased by 70%.

Neo Banks

Neo banks operate digitally, providing basic banking services without any physical branches. These digital financial companies are taking cues from traditional big banks in terms of “what not to do” while offering financial services that cost consumers less. That means, for example, fewer fees and more transparency. These fintech companies are changing the way people save, bank, budget and spend their money.

Aspiration

Location: Marina Del Rey, Calif.

What it does: Aspiration is a financial services company providing banking, investment and retirement products and services with minimal to no extra fees. Its banking services offers access to no-fee ATMs, fraud reimbursement and a low 1% annual interest on a user’s entire balance.

Impact on banking: Aspiration allows users to “Pay What Is Fair,” meaning the customer chooses the exact amount they pay, even if that amount is $0. Aspiration also donates 10% of these chosen fees to vetted non-profit charities.

Chime

Location: San Francisco

What it does: Chime is a completely digital bank that forgoes the fees most traditional banks charge. The bank offers simple spending and savings accounts with Visa debit cards that are managed through its mobile app. The app also provides early paycheck access, daily notifications on balance and real-time transaction alerts.

Impact on banking: As of January 2020, Chime recorded over 750,000 bank accounts on its mobile platform and transaction volume of $2.5 billion.

Location: San Francisco

What it does: Varo is an all-in-one mobile banking platform that offers services ranging from deposits and savings accounts to cash flow projections and in-app budgeting tools. Varo prides itself on transparent banking with no fees for monthly service, foreign transactions or using one of its 55,000 ATM locations.

Impact on banking: In September 2020, federal banking regulators granted Varo preliminary approval to launch Varo Bank, making it the first completely mobile national bank.

Simple

Location: Portland, Ore.

What it does: Simple offers banking and budgeting services on a mobile platform. In addition to traditional banking services, Simple allows users to log recurring expenses and automatically set aside enough money every month for necessities. Simple also offers shared accounts that let couples retain their individual accounts while collaborating on fiscal needs with their partners.

Impact on banking: With basic and distinct banking features, Simple is another option for consumers who want an alternative to traditional banks.

All photos via Shutterstock and social media.

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