What, for you, are the benefits of attending a conference like the ‘X-Tech Europe: Financial Services and Technology’ Summit?
It’s always valuable to understand what others are doing in the industry. The FinTech industry is ever expanding and to learn about new partnerships is always a welcome message. My session will give insights into why banks should be aware of the tech companies that will inevitably enter the financial industry. We are seeing the first ripples with Apple Card, Lyft Bank Accounts, Uber and BBVA partnerships, and the Facebook led Libra consortium. This contextual finance is here to stay.
What are the risks and opportunities associated with the evolving landscape of non-financial companies which offer financial products?
There are two points of view here, the view of non-financial companies and the view of financial companies.
The risk point of view of non-financial companies is that these companies are entering a completely new market with regulatory hurdles limiting their ambitions, something that tech companies are not always fully aware of when designing financial products. With regulators being sceptical towards these new entrants, they have to ensure all checks and balances are put in place. But simultaneously, entering an entirely new market poses many opportunities for non-financial companies. The chance to understand your customer in a new dimension is too attractive to miss. By offering financial services, tech companies can understand where customers shop, how they manage money, and who they send money to. By augmenting their core business with financial services such as loans or easy payment mechanics, tech companies can create new customer touchpoints and additional revenue streams.
The risk point of view for financial companies is of course a new set of competitors that do not follow regular banking traditions and have way more frequent customer touchpoints. The risk of loss of customers is real and significant. Typically, banks struggle to keep up with the rapid pace of innovation and integration that tech companies exhibit. The opportunity banks have is their reputation for being trustworthy and being protective of sensitive data, something that tech companies have not always been applauded for. Hence, a partnership between banks and tech companies is an ideal scenario that encompasses rapid innovation, proper data management, trust, and incredible customer experience. At solarisBank, we are benefiting from such partnerships immensely.
Why is the threat of large tech companies opening as a bank a key concern?
Large tech companies have an array of advantages over a bank, such as: significant tech understanding, experience of leveraging data, agile development processes, and an innovative DNA. When combining this with a massive customer pool, by just converting a fraction of those loyal customers, a large tech company can be a bank competitor appearing out of nowhere. The fact that they can offer the same, or better, banking products, while using Banking as a Service players such as solarisBank as their platform, should be seriously considered by traditional banks as a new class of competition.
What are the challenges of outsourcing core business, and how should risk professionals best approach this?
When it comes to the question of outsourcing, the biggest point of discussion should be: Build or Buy? In other words: “Do we believe we can do it better?” The prevalent answer of banks would be, “Yes, of course we can do it better”. This confidence and lack of willingness to partner in the past translated into a mediocre customer experience.
Slowly, banks are opening up and are willing to accept that it’s okay to not be good at everything. Here at solarisBank we say, “Do what you do best, and link to the rest”. This way you can benefit from the best-in-class products and services built by specialists. This may even lead to reduced efforts of risk professionals as there are plenty fintech’s out there that solve very specific problems in automated ways.
Logically, control measures need to be put in place. Especially for material outsourcing projects we look at many aspects including financial health and technical security. When such parties have financial licenses or a seasoned management, this is definitely a plus.
Hence, risk professionals should encourage the business department to look at partnerships that can increase efficiency, reduce risk, reduce costs, optimise customer experience and much more. The main responsibility of a risk professional then is to control and manage outsourcings.
What do you see ahead for the future of customer demands?
Modern consumers expect their services to be digital, mobile and instant. Financial services are no exception here. However, what sets financial services apart is that unlike most services, they aren’t end-products in themselves, but rather means to an end: consumers don’t want to purchase a loan, they want to purchase a car. People don’t want to send money, they want to pay rent.
Thus, not only must financial services become digital, mobile and instant, they must also adapt themselves to the ultimate goal of the customer.
By incorporating financial products directly into our daily digital services, we can shorten and ease the customer’s journey to their goal. This contextual finance trend will be a natural evolution of the market with tech and data leading the charge to increase customer relevance at the time they most need it.
