The banking industry is going through a tremendous change, where the future lies in building digital customer journeys. Reverberating this new normal in banking, challenger (or virtual) banks have disrupted the banking industry. The driving forces behind these new-age banks are innovation, competition, regulation, customer, culture, and infrastructure.
In conversation with Kunal Patel, fintech speaker, senior business leader, and mentor for startup accelerator programs to gain insight on the ‘Future of virtual banking’.
Top 3 drivers of virtual banking
With1) innovation 2) regulation, and 3) infrastructure as the focus for fintech companies, traditional banks are at snail’s pace with its digitalization journey
Fintech companies bring a lot of technical knowledge and capability while understanding consumer behaviour and expectation. Putting these aspects together, the user experience and design make most of the fintech products successful. However, the traditional banks struggle to achieve the seamless position of customized offerings and design. The traditional banks operate in a very institutionalized manner that is process-driven, governed by frameworks, and rigid.
However, the catalyst for innovation within traditional banks is largely due to the growth of the fintech industry. Until the onset of fintech companies, there was hardly any innovation happening in the financial services sector. Additionally, not every Fintech company is successful, but it provides an alternative catering to a specific group (mainly younger, digitally savvy individuals) of users.
2 major changes spurring collaboration opportunities
While the banks at the beginning were noticing the changes, they were not reacting to it. Collaboration has now begun to happen with fintech for both parties’ growth and success. One of the biggest challenges of virtual banking, open banking mission has been around mindset, thinking, and approach. When you talk about these types of propositions and services, the traditional banks are very skeptical about challenger banks’ uptake and success.
However, now its mindset is very different compared to before, where both organizations realize that there is an opportunity. There are two major changes which spur collaboration opportunities between banks and fintech companies:
- Access to traditional bank’s data points
- Build digital banking products and services for a customized user experience
Initially, there was a little bit of hesitancy and pushback, but that’s now changed.
Customers begin to have a mindset shift
The advent of challenger banks, providing an alternative to fulfilling banking needs through personalized banking at a click of a button has led to a change in the minds of the customers. Another driving for this shift is the increasing dependency on mobile applications. Having said that, a portion of customers still prefer to have an in-branch experience, hence branches will not fully disappear.
There is a split of user preferences, and it largely depends on the generation and mindset of the user.
Are challenger banks too easy to collapse?
Challenger banks have spotted a gap created by traditional banks for offering lending products and services to SMEs. It is a big change underway the SME lending, where traditional banks have been typically wary of extending its services, mainly due to the high intensity of risk involved.
However, it raises a concern about whether challenger banks are easy to collapse?
For challenger banks to mitigate its risks, it needs to look at other services as well which has led to creating a personalized product that creates customer stickiness.
From a stability standpoint, which is a struggling point for challenger banks, it is going to be a slow-process and underpinned by how quickly a customer can be onboarded without not letting them look elsewhere.
3 key Imperatives for virtual banking post Covid-19
- Incumbents to continue a relentless focus on digitalizing its products and services
- Digital customer experience journeys become vital to retain customers and let them look elsewhere
- Adoption of next-generation technologies for harnessing data and coming up with customer insights