We recently caught up with Matthias Kroner, CEO of Fidor Bank, one the world’s most innovative banks. Fidor has completely rethought the traditional concept of banking and produced an outstanding digital-only bank. All charts have come from Slideshare (here and here).
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In the last few years “neobanks” such as Moven, Simple and GoBank have been born to create a frictionless digital experience. Fidor Bank has a similar mission, and their European banking license allows them to own all of their infrastructure and create a completely new paradigm. They even have plans to come to the US and Asia shortly. Fidor Bank believes it is the “Bank For The Digital People.” Here's what Kroner said in our interview:
Breaking down your vision, what are your core focus areas?
We believe it comes down to three things:
- Web 2.0
- Technical openness by API
1. Web 2.0
This stands for the full integration of the customer into the experience. This means even if it’s sometimes painful and requires a lot of patience, we integrate our users and customers as much as somehow possible into the experience technically, communicatively and conceptually.
Banks today are disintegrated, not integrated. Why do we need to integrate them into the experience? Because we want to gain what banks lost during the crisis: TRUST.
We need trust because we want to be seamlessly integrated into the digital lifestyle of the people we serve. In measurable KPI’s, the outcome is our customer acquisition, which is just 20% of the cost of a high street bank in Germany. Obviously we are not doing too bad.
2. Technical Openness by API
If you want to be as useful as possible and deliver a valuable service, you cannot rely only on a handful of your proprietary services. What are the options?
a. If you rely on your proprietary products and services or that of a service provider, then you acknowledge that you believe there is no better service than the service you are offering your customer. Okay – you are a world champion. Great.
b. But, if you are not convinced this is the case, then you are fooling your customers. Meaning that there would be some better service out there, but you exclude that experience for your customers.
c. If you believe you want to offer more value to your customer, but you can’t actually achieve it for whatever reason (tech, staff, resources), then you need to open up. If you want to deliver the richest and most value added service, you need to be open. You need to be open and easily accessible as possible. That’s why API banking is critical.
You should collect as much data as you can get, but you must use it responsibly and in the favor of your users and customers. It is not the case that a bank is the owner of that data — simply because the data is created by and belongs to each single customer and user. So, you cannot fool people with it. This is why we are not only creating a management system, but a customer information system (CIS). The data belongs to the customer. You need to give it to them in a digested, aggregated and useful way, supporting the users and customers in improving their personal financial situation.
Here is a nutshell is a diagram showcasing the Fidor experience:
Tell me about the basic experience. What does that look like for the account holder?
You have your basic accounts, community status, cash manager, turnover, loyalty scheme, profile, inbox, and areas for CDs and overdraft loans. Each account will have their own API in the future. The customizable user experience through APIs is coming, and it means account holders will be able to have their APIs coming with each individual account. Why? Because every customer could have the potential to be a developer.
Adding to this, you can sign into Fidor Community through Facebook Connect. Fidor Bank was also the first bank in the world to have a multi-currency banking-regulated eWallet that allows Fidor Bank clients to buy currency, make payments and view balances in GBP, USD, CHF, NOK TRY, PLN, AUD, and NZD. In future, you also can aggregate in bitcoin and cryptocurrencies simply because we accept cryptocurrencies to be part of the digital lifestyle.
How does financial empowerment and helping customers manage their financial lives better fit into this idea of trust?
That’s super important. With the combination I mentioned, it’s possible. But you need to have all three possibilities. If you only do API banking and you focus on delivering an app that shows you that you don’t have money, then it's not useful. You already know you are broke without using an app that even charges you for that information.
If you don’t have the products in place to help a customer with p2p lending or community support or getting out of a bad financial situation, it is simply not useful.
How then do you help people hit their financial goals and meaningfully change behavior in a digital environment?
Data. It’s all about data. You need to have the right data and empathy-rich communication. We want your account to be your money coach.
Let’s talk about your architecture and how you are decoupling the banking experience to be more versatile. How have you designed your back end to create this customizable front end experience?
The Fidor operating system is a middleware layer that connects to the front end. The restful APIs are absolutely open and we can have a chunk to our API browser after that. We can have different partners which can be integrated into our environment.
See the diagram below for more detail on this:
What additional benefits do open APIs create for Fidor Bank?
It means we are open to outside innovation. Our account becomes a marketplace. We can have developers create their own apps and layer into the middleware. This means we can add in precious metals, outside currencies, peer to peer lending, P2P payments, PFM and more into the experience. We will be at a point shortly where consumers can go in and fully customize their account. They can determine the complexity of their experience.
We have created a developer community around this and we have our first API in the sand box and deployed it to developers. By the middle of this year we will have 30-50 APIs which are readable and writeable. We will also have multi-account API’s that the customer agrees on and ends up leading to a ‘trusted partner’ app store. Here is our roadmap:
Quite often I receive the question, whether we are a fintech company or a bank. Well, that answer is pretty easy: If a bank is not a fintech company you as that bank will face increasing problems caused by the general and increasing speed of technical development in your environment.
On the other side, some fintech startups only rely on their UX. That is also not enough for the future, simply because you only can offer what your core banking partner lets you offer. That might not be the very best service, product or solution.
Out of our experience and view, the combination of “fintech with banking license” is the way to go, if you want to offer real value to your costomers and be sustainable for your shareholders in the same time.
You have mentioned community a number of times. Talk to me about community and why is it is important to Fidor Bank?
We have built a community of almost 300,000 people now. Our community offers peer-to-peer advice on saving, investment and everyday financial problems. You can listen to the experiences of other customers. You can see how financial advisers have been rated by customers. You can seek advice 24 hours a day. Most importantly, what you don’t get is a sales pitch.
Furthermore, online users are also encouraged to come up with innovative ideas to develop and improve the bank’s products and services, as well as discuss upcoming prices. We have the community counter and rate the people in the community. We give them a karma score.
Do you incentive people in the community?
In the future, we will have special offers for people with high karma. Then, people will be incentivized to participate and drive quality. This means that the more active you are, the more interactive, transparent etc., the higher your karma will be. And that will have an impact to your economical situation, because we will create some special offers for those high-karma-users. Furthermore we already have some 3rd party partners who want to offer special rates to those people. So, being a valuable member of our community pays off.
At the moment, users get 10 cents every time they ask a question and 25 cents for offering advice to other users. And if they make a product suggestion that gets picked up and accepted by the bank and the community they can receive up to €1,000. Or they create a tutorial video. For such they receive 100 EUR.
Can customer suggest their own interest rates?
Customers can’t set it, but they can discuss it upfront to any change or new product. In the ‘interest rate consensus group,’ they can see interest rates are coming up or down and they can suggest it is time for a change.
We listen, we read and we communicate. 99% of the time, people’s comments are useful and we have a very good and understanding discussion. We treat people like co-managers and thus, they act like co-managers. If you treat them like idiots, they act childish.
Here is what the community looks like:
How do you think existing institutions should re-imagine the banking experience, despite having shareholders short term interests?
What we see in Europe, is there is an increasing adoption of small parts of our concept. Other financial institutions are trying to be more customer centric and a couple of the big banks are coming up with community concepts. If will be interesting to see if they can walk the talk. We will see if they can handle the heat they are creating. If you can’t handle the heat, get out of the kitchen.
The idea of setting a community is promise. And if it doesn’t take off, the consumer will be let down and they lose trust. Banks can’t promise something and then say it will be ready for 2017. That is far too long. Consumers expect things now and that’s the world banks now have to play in.
How has Fidor performed so far?
Very well! The average Fidor customer is 30-50 (50%), lives somewhere in Germany, is male, and executes 10 transactions/month. We have almost 300,000 community users, 80,000+ full KYC customers, 320mEUR in deposits.
Given the fact, that we as a regulated company are forced to grow profitable and in line with our tier 1 capital requirements, we are absolutely happy with our development. 2014 was the best year ever, ending with earnings after tax of roughly 2.5 Million EUR.
In comparison to any other fintech company, that is a very substantial and positive outcome.