Like everyone else, traditional brick-and-mortar banks are making the inevitable transition to mobile banking to keep up with the times and retain their customers.
According to Statista, mobile banking penetration in European countries in 2018 was as high as 93 percent, with an average penetration of 58 percent.
Mobile users love managing money with their smartphones, just like they love doing pretty much everything else with them. As a result, their expectations from financial services providers are influenced by more than the one-dimensional transition of traditional services to mobile.
This is where traditional banking methods and business models pose an obstacle for brick-and-mortar banks, because out of simple habit it’s much more difficult for them to innovate to keep up with the expectations of smartphone users.
Building a digital bank from the ground up for the mobile generation creates an opportunity to rethink the consumer’s relationship to money and their unique needs. This leads to innovation and the discovery of new ways to build wealth, save, and invest. Crowdfunding and crowdvesting (equity crowdfunding) are examples of financing innovations enabled by new technologies.
Retaining customers through higher rates on deposits and generally with numbers alone may help, but the attraction of new ways of growing and sharing wealth is drawing consumers to new solutions and opportunities.
Why Online-Only Dictates a Unique Approach to Financial Services
How do online-only financial services differ from the simple transition of a traditional banking service to mobile?
The most important difference is the ultimate goal. Traditional banks think like traditional banks. Digital is just another way for them to do more of the same, but on another channel. For example, a traditional bank thinks of online services as a means of reducing the number of people showing up at the counter.
In other words, brick-and-mortar banks want to make operations more efficient for themselves. When delivering services online they are ultimately looking at their own bottom line.
Not so for digital banks. These companies begin from mobile, and are therefore built on the rules and culture of mobile.
A traditional bank cannot easily rethink money. A digital bank can.
The second difference is physicality. Online-only financial services companies don’t have to maintain a physical presence across a country or the world. As a result, their operating costs and business model are completely different.
The business models of online-only financial services companies are very different from those of brick and mortar banks. Their business models are closer to that of any other self-sustaining app business, involving features like freemium options and subscriptions. These features are common to the app business, and it’s only logical for online-only financial services companies to adopt them to serve the consumer better.
As a result, online-only financial services companies can change the numbers game that banks play – offer higher returns on deposits, charge lower rates on transfers, and deliver completely new services and offerings to remain sustainable and profitable.
Traditional banks suffer from inefficiencies that translate to costs inevitably passed on to the consumer. Online-only financial services companies do not suffer these inefficiencies, but they need to make good use of the opportunities technology can provide.
So what advantage do brick-and-mortar banks have over online-only financial services companies?
Familiarity: The Last Bastion of Traditional Banks
So is there any advantage traditional banks have over emerging online-only financial services companies and startups?
Besides bigger budgets from the get-go? Yes. Familiarity. One might be tempted to use the term “reputation”, but for some banks their “reputation” is a liability, not an asset. “Familiarity”, therefore, is a more accurate term for the space these banks occupy in the minds of consumers. After all, the experience of physicality is an important aspect of earning consumer trust as a place for them to keep their money safe.
The single bastion established banks are still holding on to is brand recognition. It’s a significant advantage over online-only financial services companies in a world where credibility and familiarity have always been the bedrock of success. Even if we don’t trust banks, we still trust them with our money.
However, new technologies are creating new ways of establishing and retaining trust, and eating away at the foundations of the bastion. Consumers have new ways of establishing trust with mobile-only banks and choosing where to invest and save.
If the promise of reliability and verifiability is realized to its full extent by blockchain and other technologies, the bastion will fall and innovators capable of rethinking money and wealth for the mobile age will raise the victory flag.
Reputations in the Smartphone Era
The biggest challenge emerging online-only financial services companies face is that of earning trust and building a reputation.
These companies rely on reputation as much as anyone else, and have to build their reputations in a manner that makes sense for online-only services in the smartphone era. Digital channels are the only channels they can use to get close to the customer and earn trust. And that is a challenge, especially where money is involved.
New banks and their services are judged the same way any other e-commerce businesses are judged; by peer-to-peer reviews, omni-channel presence, immediacy, and transparency.
Building a reputation in the smartphone era depends on being close to the consumer, building a strong presence on the digital landscape, and allaying concerns about security and reliability to cross the trust barrier. It also involves instantly delivering value. Most of all it requires a commitment to stellar customer service.
Why Frictionless Service Will Define The Future of Banks
The expectations of today’s consumers also have expectations from online banking services that originate not from the experience of banking itself, but their experience of how apps behave: in other words, consumers expect financial services apps to share a similar experience with other apps. Consumers expect a frictionless journey to getting what they want, from search to delivery, and instantly abandon any company that does not provide it.
Technology has changed the experience of commerce, and customer satisfaction is a different game for new banks than it is for traditional banks. It depends on technical capabilities, automation, and prediction. Prediction involves using machine learning and artificial intelligence to understand customer behavior and preempt service issues so they do not arise in the first place.
Consumers today are more informed, more aware, and more demanding. To remain competitive, traditional banks have to adapt to the smartphone era in a deeper way than simply transfer the services they have always provided to mobile.
Banks can also no longer act as gatekeepers to the world of wealth-building, because machine learning and AI can deliver real-time customized intelligence and support smart decisions with no need for intermediaries. That is also the role of a true banking platform; to facilitate the delivery of information and maintain its quality to support the consumer.
New online-only financial services companies are unburdened by outdated mindsets and perceptions of money and wealth. They are also free to build businesses on new foundations, with greater efficiency and deeper intelligence built in from the start. The race, however, will be won by those companies that cross the trust barrier and deliver frictionless service in innovative and unexpected ways.
