What can traditional financial institutions learn from fintech?
While fintech presents several challenges for traditional or incumbent players, it also presents an opportunity for these institutions to learn from the new kids on the block.
In recent years, fintech has taken the world by storm. Fintech companies have disrupted traditional banking and lending models by offering innovative new products and services that are more convenient, user-friendly, and affordable than what traditional financial institutions such as banks, coops, microfinance, lenders, and credit unions typically offer.
As a result, traditional banks and lenders are forced to up their game to remain relevant and appeal to new, modern consumers. There are a few things that fintech companies are doing right that older counterparts can learn from.
So, what can they learn from these nimble upstarts?
Focus on customer experience
Many fintech startups have been built from the ground up with a focus on delivering an excellent customer experience. In contrast, most traditional banks were not designed with the end-customer, those in rural, remote areas, with SMEs or lower-income groups in mind but evolved over decades with physical limitations, and simply carrying forward the baggage.
One essential lesson is the importance of being customer-centric and focusing on the overall experience – not just one product or channel, from onboarding to support. Fintech companies have been successful largely because they design their products and services with the modern customer in mind rather than forcing customers to adapt to how their bank does things.
As a result, fintech companies offer a more intuitive user experience, which is a key differentiator. To compete, traditional banks need to redesign their customer experiences —online and offline—to be more user-friendly and convenient.
While many traditional banks do offer good customer service, some lag. By making 24/7 omnichannel customer service (via an app, phone, mobile, online), social media, chatbots, and more, a priority, traditional banks can improve their chances of retaining current customers and attracting new ones.
The power of simplicity
Traditional banks have complex product offerings, lock-in, bundling with multiple tiers, and pricing structures to keep up with the competition. Even the terms and conditions and paperwork are arcane and exhaustive. This confuses customers and makes it difficult for employees to sell products and services and for support teams to help. On the other hand, fintech typically offers a limited range of simple products that are easy for customers and employees to understand.
The importance of being agile
Fintechs are much more agile. They can develop new products and features much faster because they have fewer bureaucratic layers. They are also not saddled with legacy or aging IT systems that can make it challenging to implement new technologies. As a result, they rapidly respond to changes in the market and quickly take advantage of new opportunities.
With over 5 billion mobile phones indispensable to our lives, fintech companies have excelled in tapping into their potential, quickly adopting and integrating them into their mobile apps. This and by embracing cloud, mobile, and social media mindset has allowed them to provide a superior experience for their customers.
On the other hand, traditional banks have been slower to adopt mobile technologies. Many still rely on dated app versions that don't take advantage of the latest features and capabilities. As a result, their mobile offerings lag.
The power of personalization
Fintech startups have been able to use AI, data, and analytics to personalize the user experience, marketing offers, service, pricing for their customers in a way that others have not been able to match. By understanding their customers' usage, needs and preferences, fintech companies have developed highly customized products and services in real-time that meet these needs.
The need for speed
Fintech startups know that time is of the essence when it comes to meeting their customers' needs. So they've developed products and online loan application processes that are quick and easy to use so that customers can get the money they need when they need it. In contrast, many traditional banks still require customers to fill out lengthy paper applications, mail them, visit the branch only during certain working hours, take a token or stand in queue when they apply. This slow process frustrates customers and leaves them looking for alternatives. So if traditional banks have to learn, they need to shift their gears.
Faster approvals & lower fees
One advantage of fintech companies is their ability to onboard customers in minutes, approve loans much faster, sometimes in as little as 24 hours, and remit (transfer) money faster in seconds. Not in days or weeks. They're also able to offer lower fees due to their efficiency, which makes them a more attractive option for borrowers or customers. In response, some traditional banks have started offering online loan applications, same-day approvals or lower fees for certain products and services.
Emphasis on data security
Consumers are increasingly concerned about the safety and usage of their personal information, especially regarding financial data. As such, they're more likely to do business with companies they feel confident will protect their data from hackers and identity thieves. In general, fintech companies have done a better job than traditional financial institutions regarding data security—partly because they're newer and incorporate best practices and the latest standards from the start. However, this is where traditional banks can make up the ground by investing in state-of-the-art security technologies and processes.
Be more inclusive
Customers can come from anywhere, each with a unique need and many even with lower incomes, smaller and medium-sized enterprises, which are almost 90% of the global economy. Traditional banks focus primarily on urban areas and higher-income clients as they are more profitable and feasible to serve. It's no surprise this has left behind billions of people who are unbanked, underbanked, and financially excluded. Fintech has embraced this challenge and is a lot more inclusive, benefiting many more people.
Faced with increased competition from nimble fintech startups, traditional banks and lenders are forced to re-evaluate their businesses and make changes. By making these changes, they can better compete against the newcomers and attract new customers while retaining existing ones.
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