In surveying a panel of over 100 global financial service leaders, The Financial Brand concluded that the #1 banking trend in 2017 would be to “remove friction from the customer journey.” More than any other initiative, REMOVING FRICTION was the #1 banking trend for the current calendar year. Let’s think about that for just a moment. Notice that the #1 trend for banking is not “delight our customers.” Of course, there is no more highly regulated industry than banking. This regulation means: disclosure requirements, transaction reversal capabilities, audit requirements, anti-money laundering requirements, know your customer requirements, just to name a few. Banks have robust departments decked against compliance and risk management alone. In an effort to protect customers and their interests we have built motes around legacy systems and processes. It is easy to be sympathetic to banks in their efforts to be both compliant with regulation and friendly to their customers. This being said, as an industry, it seems that the trend and requisite goal to follow the trend, is too low an aim.
The largest area of value creation in the world in recent times is Silicon Valley. The reasons for this success are many but we will outline a few here:
- Defy Convention: Silicon Valley realizes that consumer preferences are changing rapidly and ability to meet those preferences, or more importantly to exceed expectations, needs to pace with them. We can’t expect that legacy systems will meet the needs of the “new” consumer, when a company ceases to innovate and becomes a harvester of the value that they have created they set the clock for their demise.
- Hire Right: Today’s best workforce is comprised of people that are mission-driven. It is not nearly enough to be driven by value creation, or a big paycheck. An employee who is mission driven will wade through failure and disappointment, work in the short term for less pay than they are worth, and when their motivation to stay the course fails, they will remember the higher purpose for their work and they will re-engage. These employees function best in environments of high autonomy. “Don’t tell people how to do things, tell them what to do and let them surprise you with the results.” (George S. Patton)
- Customer First: Mark Zuckerburg, founder of Facebook, is known for vehemently correcting Facebook employees for calling their customers “users.” The point being that in his mind, the term “user” is too impersonal and doesn’t give humanity to the people Facebook serves. This speaks to the the customer centric approach of all businesses of Silicon Valley. Early stage companies define the lens through which they view their products and services by numerous customer interviews. Staying in touch with the customer and their wants, needs, and unrecognized jobs that need doing is paramount.
You can read more about some of these identified success drivers here. If you really want to dig in, here are some recommended reads: “Nail It Then Scale It” by Paul Ahlstrom, and “The Lean Startup” by Eric Ries.
Due in some part to these important guides to successfully understand and serve a customer, Silicon Valley is producing the most highly valued publicly traded companies in the world. CNBC provided the following chart that shows just how valuable some of these companies have become.
To reiterate, the top 5 market cap companies at the publishing of the above chart were tech companies. As of the time of this writing 5 of the top 6 market cap companies are tech companies (Berkshire Hathaway currently resides in fourth position).
Every company is a tech company is a maxim of the day. In other words, all companies should be thinking about how they can leverage technology to delight their customers.
Are banking institutions thinking about their companies as tech companies? International juggernaut Santander seems to be exploring. Lynsey Barber writes that Santander is now offering a service wherein you can ask your the Santander mobile app about your account balance, or send a payment to a friend; a correspondence you may expect from Amazon’s Alexa or Apple’s Siri. Such innovations do follow the trend of voice controlled devices but I will offer a note of caution. I happen to own an Amazon Echo (Alexa) which is unplugged about 90% of the time (I get uneasy about Amazon listening to my life 24×7). Recently the following occurred in my home:
5 year old daughter: Alexa, play “Shake It Off” by Taylor Swift
Alexa: “Shake It Off” by Taylor Swift is not included with your Prime membership, would you like to subscribe to Amazon Music Library for $2.99 per month and unlimitedly stream this song?
Me (shouting from the other room): NO!
5 year old daughter: Yes.
Alexa: Thank you. You have confirmed your subscription to Amazon Music Library. (“Shake it Off” by Taylor Swift begins to play).
No sooner had my daughter confirmed the membership, I walked into the room where Alexa lives and asked to cancel the subscription to Amazon Music Library. And, guess what? You have to login to your Amazon account to cancel. I still haven’t gotten around to cancelling.
My point in sharing this story is that we need to be very careful about the types of innovation that are applied to financial services. While iteration one of the Santander app only allows you to check your balance and ask questions related to spending, iteration two is scheduled to include functionality to verbally make payments. Just imagine what my 5 year old could do to my bank account if proper voice recognition is not implemented.
While some banks such as Santander are looking to find creative ways to engage their customers, the general sentiment of banks around making their companies tech companies can be summed up by the following from BI Intelligence:
Worldwide, 40% of all banks either don’t have a position on FinTech companies or view FinTech companies as a threat. These sentiments would seem to communicate a protectionist mentality. Keeping FinTechs out is the strategy. Comfortingly, 60% of banks either see FinTechs as potential collaborators or possible acquisitions. Banks viewing FinTechs as potential collaborators seems to be the most friendly approach. An acquisition of a FinTech can effectively end the innovation of the acquired entity. This potential end to innovation is not exclusively a banking industry problem, rather, any mature industry incumbent finds great difficulty in innovation and as a result an acquisition can provide an innovative booster shot but soon the acquired company will adopt policies and procedures of the incumbent company and will grind to an innovative halt. On the other hand, a bank willing to collaborate with a FinTech can reap the benefits of innovation in the fast moving disruptive culture of a young thriving company without imposing innovation stifling mature company culture. These relationships can be formed on revenue sharing agreements, technology licensing agreements, application programming interface (API) integrations, et cetera. Banks being willing to open their resources to FinTechs in an effort to delight their customers seems a little utopian considering the time, effort, and expertise that has brought financial institutions through the centuries, but if 34% of banks say that they are willing, this paints a rosy outlook for raising the bar from “removing friction from the customer journey.”
A FinTech’s ability to truly delight in today’s financial world is linked to its ability to collaborate with industry incumbents. Innovation in the financial world will not come through pure disruption plays but rather in working within regulation to build upon existing architectures. Legacy systems will be phased out rather than outright replaced. The most significant changes in the financial world will come as banks and FinTechs combine their focus on the customer.