According to Dan Schulman, CEO of Paypal, the financial services industry is ripe for change. The last 5 years have seen such a shift in the financial services landscape, with new companies coming in to disrupt the traditional methods of banking or lending.
Pitchbook approximates that in 2015, about $7.6 billion was invested in FinTech companies and that figure is expected to rise during 2016. There are some exciting trends that are shaping up the industry – deeper partnerships between traditional banks and new lenders, opening up APIs and developing better service offerings.
Some of the trends that have been predicted to take over in 2016 include:
Traditional Banking is evolving
Banking traditionally are not considered to be very innovative. However, with changes in technology, and more choices for consumers, banks are realizing that they must become relevant in the new era. They have slowly started embarking on some innovative projects that blurs the distinction between the new FinTech startups and banking.
Banks such as Rabobank has worked with Tradle Inc., and others such as Scotiabank, ING have partnered with Kabbage to offer loans to small businesses much faster and simpler process than earlier. Of course, it won’t be just alternative lenders who will be partnering with banks, but also other companies such as data firms, insurance and even payment processors.
Online and Multi-Platform Customer Care in the Banking Industry
Digital customer care is about how banks engage with and keep customers happy. For most banks, their primary channel in interacting with their customers is through the call center, however, they don’t take into account the online customer experience, especially when integrated with the rest of the organization.
With customers having a higher expectations in customer service, banks realize that having a simplistic view of the customer experience no longer works. Fintech startups are taking advantage of the situation by developing a more complete understanding of their customers and dramatically simplifying their product set, thus delivering a significantly enhanced customer experience with lower levels of operational risk. To compete effectively, banks now must understand their customers’ complex needs, and not fixate on products or pricing.
Social Media and Fintech
Long considered to be the poor stepchild of marketing, social media is now an effective communication tool in many areas. By incorporating social data beyond that of credit history, salary and job history, it helps lenders underwrite the risk involved in loans, and also provide customized products that are suitable for their clients.
As social media savvy millennials are getting into the workforce, both banks and Fintech startups are realizing that social media is one of the best marketing channel for lead generation and also for brand marketing. Companies such as Prosper are now using social media as the most effective way in dealing with today’s generation.
One of the biggest change is the use of open APIs by the banks (consequently opening up their internal systems) to be used by third party developers. By opening up their APIs, banks are able to develop value-added services with the help of startups and developers that create better digital experiences resulting in deeper engagement and higher sales revenue.
Adoption of Blockchain
The public accountability that Blockchain technology presents is going to push it to greater heights in 2016. Blockchain is a ledger that shows all the Bitcoin transactions that have been made. This ledger is public and hence transparent. Blockchain and Bitcoin are gaining popularity in the financial sectors, with stock giants NASDAQ showing their support.
Security in the Banking Industry
The banking industry is keen on improving its reputation as stodgy giants that can’t change with the times. This year, the banking sector is expected to invest in ways to reduce incidences of online fraud through theft of bank and credit card information and their clients’ personal information. Online fraud has cost banks and consumers a lot of money, and the industry is determined to stop it.
One of the major blocks to quick adoption of new technology or trends by banks are the regulatory compliance that they face from the government. However, Fintech companies are not bound by the same compliance concerns and can quickly react to market conditions. This has created a playing field that is not level.
In order to compete effectively, many banks have started collaborating with FinTech startups to “catch-up” to the fast changing world of financial technology. We believe that the next five years, banking will be most affected by startups than in any other financial markets. With a focus now on the customer and customer experience, competition for the new generation of digitally-savvy consumer is intensifying.