The Weekly Extract: August 17, 2020

  • Alex Jimenez
  • August 17, 2020

The Weekly Extract from Extractable is a condensed roundup of digital experience news for financial services institutions, and our take from San Francisco.

This week we look at digital transformation and the disconnect between what FIs want to do —and how to do it. We also examine the growing popularity of the fintech sector and wonder if fintech firms can gain trust with a greater audience. Finally, we cover Google’s entry into checking accounts.


The Digital Transformation Disconnect

This week, in The Financial Brand, Jim Marous gave us a sneak peek into the upcoming annual Digital Banking Report. Marous notes that the research “revealed an overarching awareness and enthusiasm around the process of digital banking transformation.”

However, the results show a fundamental disconnect between internal priorities and what makes digital transformation successful. He notes that: “Only 21% of the respondents cited ‘deploying advanced technology’ as a priority, with ‘operational excellence’ (20% mention) and ‘culture development’ (8% mention) rounding out the bottom three priorities.” Marous states it succinctly:

“The lack of focus on technology, operations and culture will ultimately derail most digital banking transformation efforts.”

This disconnect rears its ugly head time and time again. As noted last week’s extracts:

“When we talk about digital transformation, the vast majority (of bankers) will focus on the very first word of that phrase, digital. The technology, the technology drives it. You really should be looking at the word transformation. That is what is actually active. And so we are transforming the organization to use technology. We are not using technology to transform the organization.”

Marous points to this disconnect as well:

“Past research from the Digital Banking Report around digital transformation suggests that the greatest inhibitor of digital transformation success is in the area of legacy culture. Being aware of the opportunities of digital transformation and not supporting the initiatives or investments required to achieve success is a weakness at the highest level.”

Ultimately, consumer preference will be push organizations that continue to resist. In an article in, Anirban Bose, CEO of Capgemini’s Financial Services, notes:

“Consumers have grown accustomed to the ease of use of BigTechs in other parts of their lives and expect just as smooth a digital experience from financial service providers. Traditional banks are additionally challenged by newcomers to the digital market who focus on the customer experience from day one.”

Consumers are changing behavior quickly in the midst of COVID-19 — relying on digital channels and convenience more than ever; increasing pressure on legacy financial institutions. quotes results from Capgemini’s World Retail Banking Report 2020:

“The first half of 2020 has transformed the way many people think about interacting with their money, however. As many as 57% of consumers worldwide now prefer online banking, compared to 49% before coronavirus. Meanwhile, 55% now favour using mobile banking apps – spiking from 47% before the pandemic.”

Alexander Eerdmans, Market Lead Financial Services at Capgemini Invent, is quoted:

“Despite the challenges of legacy systems and the benefits of a modern core, banks are reluctant to transform because of the resources required and the risks associated with inefficient implementation… Even so, banks that are now investing in modernising their core technology will satisfy their customers while growing profitability.”

It is clear that investing in digital transformation is the way forward for FIs. However, investing without a plan is a fools errand. The plan must strategically tackle culture, changing customer behaviors, and legacy technology.


A Moment in the Sun for Fintechs

?In an article in Finance Magnets, Rachel McIntosh writes:

“2020 has been a huge year for fintech companies. The spread of COVID-19 across the planet had a massive influence on the role that fintech plays in the daily lives of people all around the globe, as well as in the backend infrastructure of the world’s financial systems. In other words, it seems that fintech is bigger than ever.”

McIntosh asks five fintech insiders for trends that have come out of the crisis that may continue through 2021. The trends examine include:

  1. Public perception shifted fintech platforms from “can” use to “must” use
  2. Lower fees have resulted from consumer-driven product development
  3. A large number of people are becoming retail investors for the first time
  4. Increased interest in alternative assets
  5. “Challenger banks” are on the rise

All of these trends certainly existed prior to COVID-19, but the crisis has accelerated them. The fintech sector finally has the saliency they have been seeking — giving legacy FIs more cause for concern. However, legacy FIs continue to rely on the trust gap between long-standing organizations and new entrants.

To address that gap, Konstantin Rabin, CEO at Finance Makers, gives advice to fintech firms on how to gain trust, in an article in Finextra this week. Among the nine points Rabin covers, he discusses the importance of transparency:

“Defaulting to openness is critical not just internally, but whenever you’re dealing with customers. One study found that 94% of consumers said they’re loyal to brands that are transparent. What’s more, 73% of them agreed they’re willing to pay more for products from transparent companies.”

Another important area that Rabin discusses is security. Rubin recommends that fintech firms should highlight security features.

“FAQ pages naturally attract customers seeking information, so Chime, for example, uses this space to discuss online debit card EMV chip technology and how it protects the customer. The more concrete and public you can be about data security, the better.”

Rubin recommends that fintech fims focus on customer service — an area many legacy FIs claim is their competitive differntiator.

“What separates trusted ones from the rest is how they address users’ problems. Take each critique seriously. Thank customers for bringing errors to your attention. Follow up promptly once the problem has been resolved. Give gift cards to users who help you solve critical issues.”

Rubin notes, “rather than worrying about gaining trust back after you’ve lost it, be proactive.” Whether a new entrant or an incumbent, all organizations should take heed of this advice.


Google Banking

Two weeks ago, we saw reports of Google offering co-branded accounts with 8 US banks. Many industry obervers pointed to this event as another sign that big tech companies are slowly moving into financial services and eventually will replace banks. Other such events include the Apple Card, Facebook’s Libra, and Amazon’s lending forerays with partner merchants.

As noted by Tom Groenfeldt in an article in Forbes, many of these entries into financial services, have been “working with bank partners who already have the regulatory practices in place.”

The Google partnership isn’t a one-sided proposition. Groenfeldt quotes BBVA USA President and CEO Javier Rodríguez Soler:

“When we launched our new 5-year strategic plan in January, we said that two key pillars were to reach more customers with our digital offerings and use our expertise in finance, digital and innovation to help them improve their financial health. This collaboration with Google is fully aligned with this effort.”

Details on how the Google co-branded accounts will work are sparse thus far. Groenfeldt speculates:

“The bank will still own the customer, but Google will probably have access to the customer data, she said. Google wants the data it can obtain from an ecosystem of banks and merchants because the data supports its advertising sales and gives them data they can sell back to merchants to support merchant reward programs, for example.”

The fact that details are sketchy was seized on by Cornerstone AdvisorsRon Shevlin in another article in Forbes. He notes that none of the announcements or his follow up with the eight banks included any details.

“My response was “You’re not ‘able to share details’ because you DON’T KNOW any of the details, do you?” Well, that was what I said in my head.”

Shevlin offers his guesses on what a Google account will mean, such as streamlined account opening, real-time, contextual merchant offers, financial insights, and a new banking experience.

In other words, they will offer what FIs promise to bring forward but have not been able to do thus far.

In pursuit of such experiences, Shevlin wonders, are FIs “selling their souls to be Devil?” However, he believes that instead Google may be after the bank tech vendors who haven’t been able to arm FIs with the tools to offer the kind of experiences a Google account may bring.

Shevlin says:

“Google is different. It can help the acquisition and revenue side of the coin more so than any traditional tech vendor can. For all the talk of Google getting into banking and putting banks out of business, the bigger threat is to tech vendors like FIS and Fiserv.”

The last few months feel like the plot of Groundhog Day — due in part to the effects of COVID-19, but the feeling has persisted in the digital banking and fintech space for even longer. Legacy FIs continue to dither with digital transformation plans, fintech firms gain more respectability, and big tech firms extend into financial services. One day we will all wake up and realize that we are no longer trapped in the same cycle. Which legacy FIs will remain?


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