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Essential Fintech Reading: January 2-8

Fintechs Collaborate Rather Than Conquer

Writing for American Banker, Robert Schiff and Paul Breloff observe that 2015 was marked by collaboration between fintech and incumbent banks, not the rule the world mentality that many expected. From Lending Club teaming with Citigroup to meet its Community Reinvestment Act obligations to OnDeck partnering with JPMorgan Chase around small business lending, fintech companies sought to strengthen incumbents rather than displace them. In other instances, financial institutions bolstered themselves through acquisition, such as Northwestern Mutual's purchase of LearnVest and BBVA's acquisition of Simple. Schiff and Breloff note that "while some startups will achieve scale on their own, many more will only achieve meaningful reach once they find a way to work with incumbents."

With A Diminishing Moat, Banks Have To Give Consumers A Reason To Stay

In his 2015 annual shareholder letter Jamie Dimon warned that Silicon Valley was coming after the banking industry. Writing for American Banker, Bryan Yurcan and Robert Barba argue that banks have taken the warning seriously and realize that they must defend their position. While banks have fundamental advantages — incumbency and size — they have recognized the need to partner with and acquire fintech startups to enhance digital interactions and improve customer experience. The financial services industry is also better positioning itself is through the utilization of application program interfaces.  "Financial services providers have been relatively slow to recognize and act on APIs as an opportunity to transform their businesses and, ultimately, better win, serve, and retain customers," Forrester analyst Peter Wannemacher tells American Banker. "This will change in 2016, as digital business executives collaborate with CIOs to champion investment in internal, B-to-B and product APIs." Yurcan and Barba write that banks could also improve their loyalty programs as a way to fend off competition.

The Rise Of Digital-Only Banks In The UK

Writing for TechWeekEurope, Simon Cadbury addresses the rise of digital-only banks in the UK. The latest to launch is Tandem Bank, which will join Atom, the UK's first digital-only bank which was granted a license in June and received investment from Spanish bank BBVA in November. While banking incumbents are still recovering from the reputational damage inflicted by the 2008 financial crisis, Cadbury notes that these new entrants are building their brands from scratch. He also argues there is significant consumer confidence in digital-only providers, particularly their ability to deliver better mobile and digital banking services and have fewer security problems. BBA research found that UK customers will use mobile banking 895 million times this year, double the number of branch interactions. As a physical presence becomes less meaningful, Cadbury notes these challenges are also better positioned to innovate digitally "since they do not have to work around the legacy systems prevalent in larger banks. As a result, they are more agile, and can cater to this increasing appetite for digital money management, providing customers with more innovative tools and channels."


FIs Must Attain Primary FI Status To Effectively Cross-Sell

In order to effectively cross sell, financial institutions must push to become their customers' primary financial institution.  According to new research from RFi Group that is featured in the Financial Brand, this hinges on four factors:

  • Frequent Utilization - Pushing to be the provider that the consumer transacts with most often
  • Recurring Payments - Consumers use their PFI to pay regular bills, with online/mobile bill pay serving a crucial role in establishing an institution as the PFI.
  • Brick & Mortar Convenience -  While usage of branches and ATMs is in decline, consumers "continue to value a bank's physical presence and the ability to interact face-to-face if necessary." When consumers were asked about the criteria used to choose their PFI, branch convenience ranked 1st and nearby ATMs ranked 6th. 
  • Loyalty/Longevity - Consumers identify the institution they have been using the longest as their PFI. By reducing attrition, financial institutions will more likely be identified as the PFI and improve their success in cross-selling.

Another key factor in keeping customers and growing their profitability is digital engagement. RFi found that digital engaged customers hold more products with their primary financial institution. A highly digitally engaged customer has 4.4 products with their main bank, compared with only 2.7 for the digitally unengaged:


Payments Predictions For 2016

Mobile apps will kill countertop checkout, contextual commerce — placing buy buttons in places consumers visit with an interest in buying — will redefine the impulse buy and consumers will continue to flock to Amazon unless other retailers reduce the friction in their checkout process. Karen Webster makes these predictions in a piece for PYMNTS.com titled "The Six Things That Will Define Payments In 2016." Webster notes that retailers are putting up too many roadblocks that are driving buyers into Amazon's arms. "For sites that consumers visit for the first time, the information that’s asked of them before they’re allowed to pay for things is mind-numbing in some cases ... (This is) done because the merchant wants to capture consumer data. Consumers aren’t given the opportunity to checkout as a guest in these situations and then reestablish account credentials once the transaction is done." Webster also forecasts a wave of consolidation in the payments industry.