Bank Customer Experience Summit closing keynote addresses how banks can succeed in a digital banking world

One major challenge for banks is the rise of digital challengers and neobanks, which have disrupted the banking world and business models. The pandemic has only created more uncertainty over who will win between neobanks and fintechs and traditional banks.

Alex Sion, head of venture incubation, global consumer banking at Citi Ventures addressed how banking incumbents can succeed in this new paradigm in his closing keynote at the Bank Customer Experience Summit held in Chicago in mid Sept.

Sion said the title of the session, "Challenging the challengers: How incumbents can succeed in a digital banking world," is one he would have laughed at a few years ago, because it seemed obvious that incumbents would win but now, he's "not so sure."

At the beginning of the pandemic, many banks expected fintech to die out, and they prepared capital to buy them out on the cheap. The opposite happened: fintechs exploded in popularity.

What drove this growth was changing customer behaviors and perceptions. Now customers are looking for advice in an age of anxiety and their loyalty is up for grabs.

Sion said for the generation that was born or grew up around 9/11, they are in a contemplative mood, not a transactional one. They will define the new banking model.

On an economic level, Sion said there has been a K-shaped recovery. The wealthy grew even wealthier while those that were struggling before are having even bigger troubles. In this environment, "Lifetime loyalty is up for grabs for those who struggled and need help."

Sion next pointed out the famous quote from entrepreneur Marc Andreessen who said, "software companies are poised to take over large swathes of economy," and how this is impacting banks.

Banks have traditionally only had a left-to-right paradigm where they mainly compare themselves to other banks, but they need to start looking up and down as well.

They need to look up at e-commerce platforms and neobanks who are in many ways ahead of banks and below at digital enablers such as transactional rails on the bottom.

"If any narrative is gonna land, you gotta look above and below. It's got to influence all the things we would normally process using the same spreadsheets," Sion said.

In light of this threat, Sion gave two key ways that banks can compete in this market.

The first is to embrace compelling differentiation.

"In the banking world, pricing and rewards can't do it anymore," Sion said. "The reason it can't is pure economic. We don't have the funds to do that. Traditional hooks are declining in returns."

In addition, customers are in a more "contemplative, spiritual mindset," and transactional hooks won't work.

"Spiritual cannot be dislodged by offering 20,000 miles," Sion said.

As a result, banks need to embrace better engagement strategies. On another level, banks need to move quickly in the market.

"Digital models create potential winner take all competitive dynamics that didn't used to exist. Fortune favors the bold," Sion said.

When it comes to differentiation, Sion said there are three ways to do it: projects, partnerships and investments.

When it comes to projects, it can be difficult to make them work properly, due to competition priorities and the fact it depends upon an existing business framework and tends to lead to incremental change rather than breakthrough growth.

With partnerships, Sion said many banks look at it as a transaction where they buy a product from a company. They should instead look at it more strategically and be creative with partnerships.

On the creativity perspective, Sion recommende banks get more creative with their investments as well. He said this is an under-utilized method and not often thought of as a growth strategy.

Instead, Sion said banks should "invest to learn," and "lean in to the disruption." By doing this and tapping into customer's changing mindsets, banks can start to become leaders in the space and challenge the challengers in this world of digital banking.