Banks versus fintechs: It's time we all got along in order to grow

According to a report in Martechseries.com, 73% of millennials would rather have financial services from tech companies like Google, Apple, PayPal and Amazon over a traditional bank. Can banks compete with fintechs? Is there something they can offer or update or transform in order to retain this market share? Whether it's integrations with external applications or exclusive service add-ons, this demographic expects banking solutions that go beyond the financials, and these expectations don't stop at the customers.

"Millennials now makes up a larger portion of the professional sector when it comes to the financial services industry, meaning this age group holds the power to cut off a business banking solution if it's not easy and efficient to use," Weir said in an interview with ATM Marketplace. "Many banks have been slow to update to their existing internal tools despite this, not realizing that they don't have to invest millions into creating their own tech products to please these digitally-native leaders."

What Weir suggests is that banks invest in the countless creations of industry startups to bring new life to their existing offerings and capabilities and better meet the needs of today's new millennial professional. But large and traditional banks are hesitant to take this step — and understandably so.

"Between commitments to financial stakeholders, federal regulations and data privacy obligations, it's no easy task

Clayton Weir, Chief Strategy Officer, FISPAN

to get C-Suite buy-in for the flashy FinTech startup innovations that are catching the attention of millennial banking professionals — So how to take the next step?" Weir said. "By utilizing startup solutions while still maintaining the security and reliability of a larger, veteran enterprise."

Q: How can banks keep up with the lure of tech that captures many of the millennials?

A. The first step for banks is simply to acknowledge that today's financial services are under-serving and, in some cases, neglecting to account for the digital experiences and preferences of the Millennial and Gen-Z small and medium-sized enterprise and corporate clients in your portfolio. The pressure to adapt financial services to better serve incoming generations is not new, but in today's economic climate, banks cannot afford to ignore the call for digital innovation and integrated services. Once they have reached this realization, they can start to make a plan.

Think about where businesses live digitally. Organizations today tend to use a number of different software-as-a-service tools to run their businesses. Each of those will typically have their own partner ecosystem and will provide an opportunity for banks to participate and engage. Research the ones where your businesses live with the same care you might take when approaching the opening of a new branch location. Partnerships are critical. Banks cannot do it alone and that is where partnerships with legacy vendors and financial technology partners comes in handy.

Partnerships will complement the segment or business application that you might not have even thought of. Financial technology is a trusted partner, acts as the expert in each segment, and can take on the technology burden for banks for a fraction of the cost and time it would take to try to take this on in-house.

Lastly, banks should experiment, fail fast and grow. You can't know what works without trying it first, that's how innovation works and will be the key to not only retaining, but attracting the wave of new customers, corporate clients and entrepreneurs.

Q: Can a regular bank compete against a fintech startup?

A:Yes, they can, but we don't think they should have to. Having the foresight to recognize the opportunity this next generation holds, and playing the long game with these young entrepreneurs will be vital for the longevity of financial institutions. There is a real opportunity here for banks, and they might be wise to not think of fintechs as a threat, rather, a partner that can help them create these customer experiences more seamlessly, backed by the trust of the bank.

Q: What solutions are millennials expecting from their bank and how can banks entice younger customers to utilize the banks' services?

A.Consider the life experience of a millennial person entering a professional role today; they may have worked at McDonald's in high school getting paid instantly on their debit card at the end of every shift worked or they may have driven for Uber in college getting paid at the end of every ride. Their babysitting jobs might have been paid via Zelle or Venmo at the door.

Moving into a world where you get paid every two weeks, or you pay most of your vendors by mailing checks will seem foreign and "old school" by comparison. This generation is less worried about risk, less afraid of technology, and more focused on convenience than any other generation. These attitudes will drive their expectations for an effortless banking experience. Unfortunately, these expectations are also lightyears ahead of the tools that financial institutions offer to their corporate and small business clients today. Millennials will ultimately be attracted to banks that offer effortless banking experiences. By partnering with fintechs to be able to quickly and seamlessly provide these experiences, banks can swiftly get ahead of other more traditional banks.

Q: What type of add-ons, or value-added products is this market segment demanding or requiring and how can/do apps help a bank?

A: Growing customer expectations and pressures from fintechs will continue to force banks to bring their "A" game to business banking. At FISPAN, we believe that the smartest and most adaptable banks will thrive in this world, winning new clients and consolidating market share by owning the convergence of the banking and accounting experiences. For us, that means a future where banking is contextual, and banking services are turned into branded experiences embedded within the client's ERP and accounting software that organizations rely on to run their business.

Q: What are the benefits for an established bank to market toward this segment?

A: While it's true that financial services are becoming seamlessly intertwined into the operational tools that businesses use, and despite a competitive landscape, we believe that banks are still best positioned to be the dominant providers of enterprise financial services. Brand trust, deep relationships, and lower servicing costs are all advantages that banks leverage to maintain their market share.

Q: Why are banks so risk-averse to newer fintech innovations?

A:It could be because many banks believe they have to invest millions into creating their own tech products in order to compete with fintechs. But fintechs aren't looking to put traditional banks out of business. If anything, fintechs need banks to get their products to market and banks need fintechs to bring more innovative offerings to their customers.

Now more than ever, bank/fintech collaboration is a powerful strategy to help incumbents across the business value chain fill gaps in operations, regulations, onboarding, data, technology adoption, and customer experience - to give today's customers what they want. The other reason why banks may be risk-averse is the fear of data-sharing. One way for companies to collaborate is to embrace an open platform approach where industry players work together to improve not just technology, but the customer experience, too. Like open banking, it relies on data transparency and information sharing between the bank and the fintech, but it goes even further by connecting all kinds of companies to create a far more seamless banking experience.

Q: How will the reaction to the pandemic play a role in how banks move forward with fintechs?

A: While the current pandemic and resulting, financial crisis doesn't revolve around our trust in financial institutions as much as it did in 2008, it has in some ways altered our relationships with financial services. Both individuals and businesses are increasingly likely to transact digitally now, which has created further pressure on incumbents to meet those expectations and expand the opportunities that are available for startups and digital insurgents to create new streams of value. As much as we've heard that financial technology is being disrupted or competing with banks, that does not appear to be true. Competition in financial services is additive and grows the whole pie. This concept is central to helping banks better connect with their corporate clients to enable more seamless, digitized business operations.

Q: What will the future look like for banks that are taking the step to increase its offerings versus the future for banks unwilling to do so?

A: In April, Capgemini, a global financial services consulting firm, released its World Fintech 2020 report, which took banks to task for failing to provide consumers better services and for not properly working with fintechs to deliver more innovative products. In its report, the company said, "The gap between what customers expect and what banks deliver has never been wider. All customers...demand a seamless, real-time and hyper-personalized banking experience that complements their digital lifestyle."

The report found that 16% of all customers, and 48% of Gen Y and tech-savvy clients, are likely to switch banks over the next 12 months, with respondents saying that their primary bank has a narrow range of products and services, or it's not well integrated with other platforms or apps they use daily. Respondents listed five main reasons as to why they would adopt banking services from non-traditional players:

• 70% are enticed by low-cost offerings.

• 68% want easier-to-use services.

• 54% want faster services.

• 39% are looking for better features.

• 39% want more personalized products.

Banks need to embrace digitalization more fervently because an increasing number of fintech companies are taking advantage of the gaps that traditional institutions can't fill.