Our key takeaways from one of Europes leading digital banking conferences, Finovate Europe 2020.
Last week, on February 11-13, leading experts on fintech, banking and insurance gathered in Berlin to provide their take on the future of banking. The key themes of the conference were centered around digital future, open banking, future technologies, payments and insurtech. The 150+ speakers gave amazing insights into the most trending topics of financial services, that’s why this post focuses on a few key highlights that are relevant for decision makers in the banking innovation ecosystem.
Winning in financial services requires a relentless focus on convenient customer experiences
New technologies, such as artificial intelligence and cloud computing, are important drivers of innovation in banking. However, despite of all the hype about new technologies, the ultimate end-goal for banks is to be able to provide a superior customer experience.
Steven Van Belleghem, author of Customers The Day After Tomorrow, made this point very clear in his keynote titled: “Which technologies will be truly transformative in a new digital world?”
One of his key points was that winning in the old world was about excelling in one specific feature of the customer journey, such as offering the cheapest price, fastest check-out, or providing the best service.
In the new world, the concept of a single unique selling proposition is not valid anymore. Instead, companies need to excel in every step of the customer journey with a radical focus on creating value for customers. It’s about leveraging tech for customer value, not just for the sake of being trendy.
As time is the most valuable asset for customers, they simply expect personalised services that are tailored to their needs. The most convenient provider wins the customer’s loyalty.
Challenger banks like Monzo or Revolut have gained traction as they started out legacy-free, providing maximum convenience through sleek digital banking apps, which are enabled, not defined, by digital technologies.
For traditional banks to win, they need to solve two challenges simultaneously: modernising legacy IT to generate backend efficiencies, and innovating products and services on the front-end to ensure convenience.
Meaghan Johnson, who is part of the Ross Republic advisory network, gave an in-depth talk about what makes customer experiences convenient in banking. She referred to four key success factors:
Watch her full presentation below:
When every brand can be a bank, trust becomes the ultimate competitive advantage of traditional players
Trust is the result of consistent actions over time, which is an asset that new banking challengers don’t have yet. That’s why the majority of deposits in Europe still sit in traditional bank accounts. New upcoming financial services brands are mostly used for very specific purposes, such as secondary or travel accounts (Revolut), budgeting tools (Yolt), or simply to try out convenient investing apps (Robinhood).
Even though trust is a key competitive advantage, the emergence of open banking and Banking-as-a-Service (BaaS) gradually diminishes the role of traditional banks: ever more brands that excel at product innovation conveniently embed traditional banking products into their own customer journeys. Any digital consumer business is now a potential fintech company.
How will traditional banks keep the customer contact and loyalty, when they’re reduced to a balance sheet provider? That’s the basic hypothesis behind the “dumb pipe argument” that frequently came up at the conference.
It’s also the reason why many banks invest in their own digital transformation programs and try to catch up with digital challengers. However, not every bank can do and be everything: the easy payment solution, the personal finance manager, the trusted authentication entity, the fastest digital consumer loan provider, etc.
There are over 6 000 banks operating in the European Union, so it’s also unlikely that every bank becomes a successful ecosystem or platform provider. Only a few will achieve this, most likely restricted to their core geographic markets.
Trust is the baseline for curating anything.
Kristian Luoma of OP Labs Finland made an interesting case for what banking-as-a-service actually means for traditional banks: to build on the consumer trust that they have built over decades, and to pick their battles wisely. There are many third parties that integrate banking-like services better and more conveniently than the traditional banks. That’s fine, as long as consumers trust their bank with keeping their assets safe and curating the best of breed third-party services for them.
As Kristian said, trust is the baseline for curating anything. Banks can actively become part of the evolving open banking ecosystem and build on their advantage as a trusted curator or aggregator that bundles the best services. There are many ways to do this and every bank needs to find its unique strategy, e.g. offering infrastructure as a service (Starling), participating in new distribution channels under their own brand or co-branded offerings (Uber x BBVA), curating own tailored ecosystems (N26) or orchestrating the whole ecosystem (Ping An).
Banks that let go of the need to control the whole customer journey and concentrate on the pieces where they can add most value will be able to gain the most from the emerging open banking ecosystems.
How to make open innovation and strategic bank-fintech partnerships work
Monica Woodley of Fintech Circle moderated an interesting panel on overcoming challenges and building strategic partnerships to advance digital transformation at scale. Part of the panel were Andrew Casy of Fidelity Investments, Maria Leontiou of Eurobank and Fahd Rachidy of Abaka.
European fintech companies are essentially the R&D lab of the traditional banks. Thus, in order to advance their own digital transformation, traditional banks rely on successfully integrating fintech solutions. One best case example is ING, which currently has over 200 partnerships with fintechs and invested in 27. At the same time, ING already dropped about 90 unsuccessful partnerships.
Most fintech companies operate directly opposed to how a big bank runs its business: Fast decision making based on customer feedback, product innovation and development at their core, efficient digital marketing and working in independent small teams. Initiating partnerships with banks and getting through procurement and compliance departments can take a long time.
In order to speed up decision making, the key success factor is to have a flexible buffer in between two worlds: a dedicated partnerships unit that speaks both the startup and corporate language, and is able to match both parties.
While fintech companies need to comply with regulations and data security, they shouldn’t be treated like the big tech vendors. A dedicated fast track that transparently lays out the key objectives and terms of the partnership, the roadmap with key stage gates and a way to mutually commit to the project is key to make open innovation work.
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