There hasn’t been an innovation in banking in the last decade that wasn’t also a technological innovation.
Whether it’s going digital with mortgages or opening a new account on your mobile phone, the future lies in the twin forces of consumer and technology revolutions, with the former causing the latter.
It’s normal to think that technology is driving new consumption solutions, but in reality it’s an increasingly less patient consumer who demands more and better technology to meet their needs. That means those who innovate the fastest will win the most.
So banks have to make friends with something that contradicts their nature. They have to give away a lot of creative power to fintech companies to reach their customers quickly.
We often think of banks as a single “thing”. In fact, however, they are the ultimate form of disparate systems coming together under one roof. These elements include culture and people. These will remain key differentiators in the future, no matter how the technology evolves.
So while lenders are definitely at risk from fintech innovators, they also have opportunities to win.
Established banks are exposed to the challenger banks like N26 and Revolut, which have gained a huge customer base in a short period of time. While these companies have so far offered many people a “secondary account,” they will eventually transition to primary accounts as they settle in.
But that’s not the only way. Avant Money came to Ireland with nothing. But two years later, the company is heading for a double-digit share of the mortgage market after using a combination of intermediary sales and technology to achieve its great products and prices.
Irish banks are at risk from the trend towards intermediary-driven solutions alongside technological innovation. The idea that financial intermediaries will be a thing of the past does not stand up.
On the contrary, mortgage brokers have doubled their market share in recent years and now half of all mortgages are sold through this channel.
In the insurance market, this has always been the majority, despite the push for direct-to-consumer solutions. In fact, the buyers of the largest brokers are often insurance companies themselves.
The most innovative solutions came through intermediaries. Tracker mortgages, for example, entered the Irish lexicon through intermediaries selling Bank of Scotland loans, as did Finance Ireland’s first super-long-term fixed rates last year.
The indirect route to success really is to segment a market and channel into what a company does best, and then focus on just that one thing. Can you open branches, handle all types of bank account customers and still be the best mortgage provider out there? Maybe, but for how long?
The increased focus on just doing one thing well is proving to be financial power, but that doesn’t mean there won’t be a “bundling” of solutions where multiple market heroes come together synergistically.
The branch is being replaced because more and more banking services need to be fast, seamless, online and available everywhere.
Even getting something as complex as a home loan only requires a mobile device and some time.
Paradoxically, however, this means banks need motivated and knowledgeable client teams because the only failing of technology is that it drives people crazy when they can’t find what they want or transact digitally. Conversational chats powered by artificial intelligence will certainly become more prevalent, but strong teams of real people will remain the ultimate pillar and key differentiator of successful banking brands.
Financial companies need strong distribution (which is what indirect channels like intermediaries represent) along with strong technology (which is what the fintech companies offer) to be successful.
What is “new” in banking in the future will likely be solved by a fintech company and sold by an intermediary. As a bank just can’t keep up with the pace of development, buying solutions makes more sense.
One day you will be able to get a mortgage with a phone, a fingerprint and a download of your bank details. It’s coming faster than you think. The pandemic accelerated the adoption of digitization, with an adoption rate of one or two years for every month of lockdown.
In time, there could even be a multi-bank “supermarket” that would house branch services for different institutions under one roof. It makes sense that paying to join this “club” is wiser than banks running redundant, unprofitable branches across the street.
The future is coming at a speed that few could have imagined just a few years ago. This is as true for financial services as it is for more obvious “technology” like self-driving cars.
Karl Deeter is CEO of the mortgage brokerage platform OnlineApplication.com
https://www.independent.ie/business/personal-finance/banks-may-be-at-risk-from-fintech-innovators-but-opportunity-knocks-too-marrying-together-people-and-ai-will-be-key-to-success-42123382.html Banks may be at risk from fintech innovators, but there are also opportunities – connecting humans and AI will be key to success