Improving your bank's digital experience

Many of the nation's top-tier banks are inching along the adoption curve and redefining themselves as fintechs. With many drawing the spotlight as market darlings, fintechs – led more often by tech whizzes than bankers – are revolutionizing banking through targeted applications of rapidly emerging technologies. In bare bones terms, the fintech mission is to find better ways to do business, whether it's through a consumer-facing capability or a back-end process. Success lies in carving out a niche by providing sharply focused solutions, usually to a pain point (or two) that regularly frustrates consumers.

Fintechs' size and sophistication range from mom-and-pop virtual startups to subsidiaries of major technology companies, including IBM, which is top ranked for using artificial intelligence in banking. While smaller tech

Rick Jaros,Spinnaker Consulting Group

companies with sexy solutions tend to get a lot of the buzz, you can't have blinders on to the broader fintech ecosystem when your organization is trying to fill in the blanks around what it needs from a capabilities standpoint.

Only those banks in, say, the top 10 in assets have the in-house technological horsepower and deep financial pockets to envision and develop these savvy offerings themselves. They might carve out a group of digital talent and establish a think tank, where they leverage design thinking and other smart tools to dream up and build internal apps. On the flip side, some banks are opting to act as venture capital firms, injecting cash into smaller fintechs that, in turn, develop unique capabilities that align with the customer experience banks want to provide.

Fintechs embrace agile methodology and the newest technology, often built on more flexible back-end platforms that allow them to execute on new ideas quickly, ship code rapidly and get to market sooner. They cycle through test, learn and adapt in the time it takes a conventional bank to convene a meeting. But all that rapid innovation doesn't mean they don't have staying power – this market segment is projected to nearly triple, reaching just under $310 billion by 2022.

That means fintechs are doing something right – starting with not trying to be all things to all players. That means banks need to take the right lessons away from the evolution that's taking place around them.

Understanding What Fintechs Offer

Once again, most fintechs are drilling really hard on solving one big problem for consumers. Their reach stretches beyond banks into all areas of financial services, including insurance and real estate.

Take Robinhood, which aims to make investing less scary for the average consumer. Their commission-free platform is a Sesame Street version of TD Ameritrade and its new corporate sibling, Charles Schwab. Robinhood is basically helping 10-year-olds (or 20-year-olds who've never had access to financial literacy education) learn how to start investing.

Or look at Dave. Its founders built a complete online bank around the problem of people paying overdraft fees. And they found an audience: Dave has seven million members – and it's adding more every day, all of whom are banking via a mobile app.

Consumer-facing startups, embracing new technology, are chipping away at big bank value propositions and attacking unique financial fragments along the way. Even if they don't steal your customers, their delivery is leading them to expect more from their experience with your bank.

Back in the early dot-com era, a common expression going around, in some variation, was "Don't be a miner. Sell shovels to the miners." The gist is you don't have to do the hardest work out there, but you can make a lot of money by offering the necessary tools for someone else to do it. In the fintech world, those tools are creativity and technology.

A great example is Avant, which started in consumer lending. Before too long, its leaders discerned that what made them stand apart was their platform, not their products. Selling that infrastructure to other providers became part of their business.

The key learning: Banks no longer have to build end-to-end solutions themselves if there's someone out there who's already done that legwork – and has pretty much done it better. With the advancement of APIs today, banks can choose from an array of fintech plug-and-play features to add to their digital framework. The experience, as it always should be, is transparent and seamless for consumers.

Fintechs absolutely are doing a lot of things right, but that doesn't mean they don't get some things wrong. It's smart to maintain caution as you explore fintech partnerships, as their quick actions sometimes result in risky positions. Regulators haven't kept pace with growth in the space, which creates the potential for error, such as faulty interest rate calculations or weaker security. As these startups get more airtime, regulators will ensure that fintechs play by the same rules, but perhaps not the same level playing field.

What We've Learned from Fintechs

Fintechs present opportunities for banks to streamline their digital transformation, in large part by seizing and introducing new capabilities that align with their enterprise strategy. We're seeing amazing things happening, but organizations need to take the steps that are right for them:

• Acquire the services you need to do better. If you're a mid-sized bank, for example, you can cherry-pick the capabilities that complement your customer experience. You don't need to build them from scratch, and, frankly, you probably couldn't do it better if you tried. For example, with mobile payments on track to jump by 50% by 2024, is this the time to offer that to your customers or market your existing service more heavily?
• Protect the areas with the most potential profitability. Fintechs are scouring for those segments, particularly in consumer lending and wealth management. Banks have traditionally had a sweeping suite of in-branch products in these categories. Now is the time to guard against a fintech assault by putting digital capabilities in place so you can serve your customers better before someone else does. You should also apply segmented strategies to defend your most valuable customers against being poached.
• Don't throw a lot of money away chasing after customers. Fintechs will spend big bucks to buy market share – maybe spending more than twice your total channel budget on a single banking product. You can't cut through their marketing clutter, and you'll never come close to matching them dollar for dollar (or spend those dollars as quickly as they do). For instance, the fintech Dave alone is putting aside $100 million for marketing in 2021. If you try to run after a fintech like that, you might end up falling flat with a fad instead of riding ahead of a good trend, when the smarter choice is usually to invest in efficiency and enhance your own digital offerings.
• Be willing to fail. This is a big thing that fintechs get right. They aren't afraid to get a minimum viable product in the market and evolve from there, because they know someone will always be right behind them building a better mousetrap. But they get out there first. You need to acknowledge when you've failed and move on; don't get caught up in trying to save every investment.

What happens if you're not watching?

Right away, you're going to be surprised by market shifts. More importantly, by not paying attention to what's happening with fintechs, you're going to miss the opportunity to be inspired – to embrace that fintech mantra of "Think of better ways."

Maybe your organization doesn't have the resources to create something amazing at that same scale, but you can bring in fresh ideas – including white labeling fintech offerings among your own – and rethink what you could be doing. You're already employing this tactic with other internal functions. Take your marketing team, for example. When you want to tap into a different mindset, you hire an external marketing resource.

Fintech is about changing mindsets. These companies are fine-tuned to internally arrive at "yes" in that they will find a way to test new products and engaging capabilities in market – even if the offering is imperfect or the value prop isn't yet fully know. Banks have trained their people to avoid risk, so it's easier for bankers to say "no," which, in today's marketplace, could push them closer to extinction if they don't succeed in meeting customers wherever they are.

The banks that will thrive in this new digital ecosystem are those that understand what customers are looking for, anticipate that need, and find the most innovative way to meet that need with specific products, services and capabilities.