What sets financial institutions apart from their competitors? What are the key areas of opportunity? How will the competition between FinTech companies and traditional banks play out in the nearest future? We’ve recently met with Rahul Chhabra, VP Sales, Head of BU FinTech at intive to talk about the shifts and trends in the financial domain.
Let's start with the topic that’s been foremost on FinTech entrepreneurs’ minds for quite some time now: customer experience. How has the definition of customer service in FinTech changed in 2021?
FinTechs are driving a massive change in the manner we interact with banking, insurance and financial services. Seamless digital solutions and top-notch customer experience have taken center stage now. More recently, due to Covid-related challenges, this shift is expedited with renewed emphasis on security, personalization (through elements of AI) as well as access to newer products that touch our daily life, without face-to-face interaction.
From mobile banking to open banking revolution, from ease of access to loans supporting cleaner environment to cloud-based products for wealth management, we see customer service evolving and becoming personalized yet speedy and intuitive, which is what customers ultimately want.
So what’s the biggest disconnect between what financial institutions are currently doing and what they should be doing?
It’s quite a pertinent point: What they should be doing versus what they are in fact doing. This is actually one of the reasons why there has been such an explosive growth in FinTechs and subsequent valuations.
I think the biggest disconnect has been that the banks didn’t evolve along with the change in consumer behavior, particularly with the growth in the adoption of mobile and Internet. Consumers are able to shop faster, find better options, want to have more control over their data and prefer to keep the power to themselves when it comes to making their own financial decisions.
Technological breakthrough in cloud, data, AI and automation provided them with easy access to various innovative financial products, from mortgages to insurance, which the traditional financial institutions were less agile to embrace. While banks were well-placed to adapt, due to their size, culture and lack of innovation, they continued to rely on the existing ways of interacting with customers.
How can FinTech companies keep up with their customers’ changing demands?
The big advantage FinTechs have over traditional financial institutions is that they can be a lot closer to both B2B and B2C clients. From using the power of social networks to creating cloud-only applications and products, they are always able to adapt quickly.
Additionally, AI and machine learning continue to provide insights on consumer behavior, spending habits, transaction history etc. which can always be incorporated in frequent product releases that traditional institutions usually struggle with. Innovation is key, and FinTechs should continue to evolve along with the changing consumer needs.
You’ve mentioned cloud computing. This technology is becoming ubiquitous in FinTech. What are the challenges that FinTechs face when developing their cloud infrastructures?
Cloud technologies are driving innovation in FinTechs by enabling tailored products and services in the process, accelerating growth, scalability and automation. However, there are challenges like security and compliance, infrastructure costs and vendor lock-in that they constantly need to be aware of. So, for example, the inherent fear that managing data in the cloud exposes financial organisations to a greater risk has been difficult to overcome. Another cause for concern is the chance of vendor lock-in where FinTechs are too dependent on a single service provider, which makes transferring to different vendors complicated and costly.
Let’s touch on another important issue: the rise of payment fraud. According to Juniper Research, online payment fraud losses might exceed $200 billion over the next 5 years. How can FinTech companies deal with this?
Both fraud prevention and detection are critical issues that FinTechs regularly face. FinTechs have increasingly become more mature in catering to this subject both in terms of offering services to other banks and incorporating these practices themselves. Some of the methods include using machine learning analyses, sophisticated authentication solutions and ID verifications, KYC checks, multi-stage transaction, and, more importantly, reminding end users regularly how to check themselves for fraud during transactions.
Given these rapid shifts in FinTech, how do you think the competition between FinTech companies and traditional banks will play out in the nearest future?
That’s a very good question. I see both competition and collaboration in the future between FinTechs and traditional banks. While companies like Revolut are disrupting traditional banking by embracing full digitization, the traditional banks are here to stay, not just in retail banking, but on a bigger scale, in commercial and investment banking as well.
They will, however, be under constant pressure to innovate, keeping customers (both B2B & B2C) at the heart of their products and solutions. As a result, some of the banks will leverage FinTechs in specific areas, like open banking, which will trigger consolidation and acquisitions. Banks will also internally groom mini-FinTechs within their organization, though that would be harder to achieve.