FST Media: Who will survive the fintech revolution and why?
Johnstone: The answer is “whoever best delivers a sense of belonging and engagement.”
Let’s start with some cold hard facts. The recently released 2016 World Banking Report highlights that when it comes to their financial affairs, consumers still trust established institutions most.
The question of trust – or the lack of it – largely explains why the vast majority of fintech firms are still struggling to monetise their offerings. Take Robo-advice tools, for example. Many Robo-advice firms have pivoted away from the consumer toward the adviser. People trust people more than robots.
If the only currency that matters is trust, why are established financial institutions – with a solid monopoly on trust – losing ground to fintech minnows and spending up big on sexy new technology? Is it simply that the recent stream of financial and insurance scandals, at major Australian institutions, has undermined their credibility? Not really. The recent scandals will not have come as a surprise to the Australian community. Like football, meat pies, kangaroos and Holden car,s it’s in our DNA to have a love-hate relationship with the big banks. We may not like the way they behave – we may not have our bank manager over for a BBQ – but to whom else can we safely entrust our money?
Well actually, these days, Woollies Insurance. And Coles. And Google Wallet. Oh and those peer-to-peer lenders. And that crowd-funding app all those charities use to raise money for good causes. And Poli. We also hate credit card fees. Meanwhile, consumers have become accustomed to far more responsive, engaging levels of service across a whole range of work and leisure activities. These days, it’s all about belonging, choice and convenience.
This is a problem for large, slow-moving, relatively unresponsive financial institutions. Engagement and belonging are now necessary foundations of the trust they once commanded solely by virtue of their size. For fast-moving, agile fintech start-ups, this looks like a great opportunity. Yet, every coin has two sides. The pace at which trust grows is evolutionary, not revolutionary. Take Bitcoin, by its tenth anniversary in 2018, it may just be cracking some moderate acceptance, but as we sit today it is still a very long way from ubiquity as an alternate currency.
Successful fintech firms have not built their success on technology alone. Many Silicon Valley ‘unicorns’ have amazing technology, but they succeed because they tap into a consumer need to belong. They provide a like-minded ‘community’ for their customer/members; they give power and voice to the individual.
Do the big banks and financial services institutions have this in mind as they pour ever more investment into their technology? I’m not convinced. Take superannuation funds, they talk about their “members”, but the overwhelming majority of their customers are nothing more than account holders conditioned to expect nothing more than competent investment management, compliant behaviour and periodic communication. More broadly – including banks, insurance, superannuation, financial planners and others – there is a strong consumer perception that the financial sector values “products over people” and “profits above all else”.
This would create a fatal flaw in the foundations of trust for any business. One mistake, one more scandal and the house of cards can come tumbling down, but how does the financial sector shore up those flawed foundations?
This is where big institutions and established financial services providers can learn from fast moving next generation firms. Invest in technologies – indeed integrate technologies – that help engage their customers in meaningful, rewarding relationships.
Invest in technologies that make fintech the solution, not the problem.
That way you become something to which people want to belong.