The fintech revolution is transforming the financial industry in a multitude of ways. Nowhere is this more apparent than in customer experience, where fintech startups are rapidly outpacing incumbent banks on cost, speed and level of service.

In this era of rapid change, incumbents need to adapt or risk losing market share to technologically-enabled challengers. Here are four of the most notable trends in the fintech landscape today.

​AI Enables Personalization At Scale

Research from Accenture’s 2018 Personalization Pulse Check found that 91% of consumers are more likely to choose brands that offer personalization; that is, offers and recommendations tailored to the individual consumer. For financial brands and the complexity of financial products, personalization can often be challenging to implement at scale.

That’s where AI comes in. Thanks to natural language processing, banks can now offer sophisticated chatbots that respond instantly and appropriately to customer queries. In 2015, Ally Bank made waves when they launched Ally Assist, a virtual banking assistant within the bank’s mobile app. The assistant seamlessly assisted customers with routine tasks, such as making payments or checking transaction history.

Alexa’s voice assistant allows customer to make queries. (Credit: Bankingexchange.com)

Since then, more banks have implemented similar chatbots with advanced functionality. Bank of America’s Erica chatbot utilizes Big Data to offer individualized advice, such as how to save money and which financial products to buy. And Wells Fargo became the first US bank to offer a Facebook chatbot capable of answering very specific customer queries, such as how much they spent on food in the past week.

Aside from chatbots reducing customer service costs, they also provide 24/7 help that’s timely, accurate and highly personalized. Their capabilities surpass traditional customer service in critical areas, and are only getting better with time.

P2P Democratizes Finance

The disruptive impact of peer-to-peer (P2P) technology has been felt across multiple industries over the years. Napster forced record labels to adapt into digital distribution channels of music, torrent sites like BitTorrent enabled worldwide sharing of pirated software and entertainment, while long-distance calls were superseded by applications like Skype.. If recent developments are any indication, finance is next.

The trend of democratized finance began with P2P payments, enabled by fintech firms like PayPal and Venmo. Incumbent banks have since responded with their own versions of the concept. For instance, Zelle, a P2P payments app launched by a consortium of US banks, saw $133 billion sent in 519 million transactions in the first six months of 2020, a 60% increase from 2019.

P2P lending has also been growing at a rapid pace. Concurrent with the pullback of traditional credit in the wake of the 2008 financial crisis, improved underwriting algorithms made P2P loans scalable. And while traditional lenders have since recovered, customers continue to flock to P2P lending marketplaces today.

The main reason for this: superior user experience. Customers report low satisfaction with the traditional loan experience, with 69.3% considering it the highest friction of all banking experiences. Meanwhile, P2P marketplaces consistently earn much higher net promoter scores than traditional lenders – an average of 80, compared to 20 for regional banks and 5 for national banks.

Consequently, the P2P wave shows no signs of slowing down. To compete, banks must solve for the heightened expectations of customer experience, whether that be by matching P2P competitors on customer service, partnering with them or offer P2P solutions of their own.

Automation & Blockchain Create Major Efficiencies

Financial institutions have embraced automation when it comes to operational improvements or back office functions. But in recent years, leading-edge fintech companies have been leveraging automation in innovative ways to improve the customer journey.

In accommodating digital new account openings for instance, traditional banks are typically slow adopters. The BAI reports that 47% of banks don’t allow customers to open new accounts online, even though most want to.

In contrast, streamlined digital account registrations are the norm for fintech companies. Investing app Acorns’ automated new user registration process takes a mere 3-5 minutes to complete. They also have a dedicated support team standing by to answer questions via phone, email or live chat the moment a new customer runs into issues. This combination of automation and efficient service makes for a seamless onboarding experience that minimizes new customer churn.

Over the mid-to-long term, blockchain technology is poised to play a significant role in back office efficiency. Schroders estimates that blockchain will cause operating efficiency ratios – or dollars spent divided by dollars earned – to decline from the mid-to-high 50% range to the low-to-mid 40% range. Aside from cost reductions, complex transactions such as cross-border payments can be accelerated by blockchain, thus greatly improving the customer experience.

Digital Transparency Builds Trust

Technological progress is not purely about bits and bytes, or even dollars and cents. In some respects, the most significant changes wrought by fintech will be cultural ones.

As digital technology lowers the cost of communication, consumers now expect a high degree of transparency from the businesses they patronize. This is an especially important opportunity in financial services, where such transparency can help position brands as trusted advisors.

For example, following the outbreak of COVID-19, leading Chinese banks launched online portals to provide digital services, timely advisory content, and educational videos explaining how the pandemic could impact investment portfolios.

One major Singaporean bank introduced a comprehensive set of emergency services for small and medium enterprises (SMEs), including six-month loan deferments, temporary bridging loans, fee rebates, and collateral-free, next-day business loans. They then launched an online “SME Academy” to help business owners navigate this menu of financing options.

Some challenger banks are taking transparency even further, by sharing details about bank operations that have traditionally been considered proprietary. For instance, digital bank Monzo has implemented a culture of “radical transparency.” This includes sharing its entire organizational roadmap on a public Trello board, publishing its annual review online, and even disclosing exactly how they use customer deposits. According to the bank, this transparency has significantly increased customer trust and employee morale.

Evolve, Partner or Die

Technology marches on, and financial incumbents must find their own ways to thrive. By understanding how fintech has facilitated an evolution in the financial industry and establishing strategic partnerships with fintech firms, banks can be well-positioned to deliver to the expectations of the modern customer and, in turn, thrive in this digital future.

Next Steps

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