Retail Banking and Fintech

Start-ups are building solutions with a focus on the client experience

Over the past few years, fintech companies have transformed the way that people engage with Financial Services. Leveraging existing banking networks or relying on external third-party systems, fintech providers have been able to deliver the same services that banks do, including commercial loans, holistic financial advice and investment advice. They are doing one thing particularly well when compared to their traditional counterparts: they are building better client experiences.

The Retail Banking Experience:

Customers have higher expectations than ever before from their financial services providers.

Clients want custom tailored solutions to fit their needs. The most obvious example of this is within payments and we only need to look to the e-commerce space to see that this market is dominated by alternative payment mechanisms like Paypal, Braintree or Stripe. Customer-facing retail stores like Starbucks have similarly followed suit, offering their clients seamless Point of Sale solutions.

Millennials are the biggest early adopters of mobile banking and mobile money management applications. Many early stage fintech companies have recognized this and are building mobile-first applications: Acorns (investments), Osper (prepaid debit) and Robinhood (trading) and Venmo (social payments) to name a few.

So How Does this Affect the Retail Banking Landscape?

These technologies are putting pressure on banks to automate their business processes and reduce their headcount. In the retail banking environment, Citi Bank projected that it anticipates as much as a 30% reduction in headcount from 2015 to 2025 (1). While this implies a significant number of job losses over the coming years, the main takeaway will be that retail banking will shift towards mobile distribution as the primary means of interaction between the customer and the bank.

In fact, close to 38% of millennials have not visited their retail bank branch within the past year (2). More startling still, 71% of retail banking customers consider their relationship with their bank to be transactional rather than relationship-driven (2). In other words, millennial clients are starting to place greater emphasis on the services being delivered and how they are delivered rather than who is delivering them.

The implications for this are extremely important going forward for Financial Services as these technologies may lead to lost revenue (lower fees, fewer in-house transactions), loss of brand relevance (app dominated) and loss of customer relationships (fewer interactions with clients).

Nearly all banking executives agree that the industry is moving towards a digital banking ecosystem, but the major problem to digital adoption is scaling in accordance with their legacy systems and regulatory constraints (3). Legacy IT banking systems are preventing banks from adapting quickly to new demands from clients and from regulators. Banks must start building new scalable systems to respond to rapidly changing consumer expectations.

The key to customer retention in the long term for banks will be maintaining relationships with their clients.