It wasn’t that long ago there was this idea that fintechs were coming to “eat our lunch”.
Lacking legacy operations and armed with new technology-enabled offerings, fintechs would “disrupt” banks’ revenue lines across payments, mortgages, business lending and advice.
Yet more recently, the rhetoric has shifted more towards one where banks and fintechs “do lunch together”.
Meeting with a range of banks, fintechs and other companies in the US and Canada in May, partnerships were clearly becoming more desired as start-ups seek scale and customers, and incumbents eye smart new ways of servicing and solving problems driven by better understanding customers.
But in certain situations, it was also clear the biggest US banks were better positioned than in the past to win, particularly those that focused on their strategy and the future during the difficult years post the global financial crisis. In the first quarter of 2018, Zelle – a payments functionality built by the big US banks embedded into their individual apps that has become a leading player – revealed more than $US25 billion had moved through its network, up 15 per cent on the prior quarter, on 85 million transactions.
This emphasised the various “land grab” battles underway, such as the race for customers’ mobile phones given only one bank account can be attached to a mobile phone number.
A relentless focus on the customer will be key, a theme we saw at many companies regardless of their different stages of innovation and transformation.
And there’s also much to learn as some fintechs get better at understanding customer behaviours and how they think.
A great example was US start-up brigit, which provides short term funding to consumers prior to their bank balance falling below zero and incurring overdraft fees.
While there have long been personal financial management tools, brigit highlighted an approach of how to use data to create meaningful, forward looking insights, and thereby tackle something that really matters to consumers: getting charged high interest rates for short term cashflow mismatches, such as when a bigger than expected bill falls due just prior to pay day. People care less about how much they spent last month on various things and more about the embarrassment of running out of money, a true service that they may be willing to pay for.
Another start-up sigfig, a robo-advice player, is looking at how to use different interfaces with customers to create transparency and honesty akin to going to a doctors’ surgery and filling out medical information privately on a clipboard, which may generate different responses than when face to face.
These feed into a broader consideration for the future: how can technology enhance companies’ revenue pools and create adjacent ones, alongside improving productivity and customer experiences. With no guarantee that credit growth will be the same as previous years and regulation unlikely to ease, this question is one all participants in the financial services industry are likely looking to address.
But it has to be valued services, creating easy solutions and meeting more of customers’ needs.
Great service isn’t “it costs me this much - how much can I charge for it?”. It is “what do customers really value?”. We are seeing this via Reinventure’s portfolio, where Westpac’s Business Bank recently worked with one of its first investments, Assembly Payments, on “Presto Smart”, a system that integrates business customers’ point of sale systems with the bank’s merchant terminals.
Ahead of a planned third fund, Reinventure has helped reinforce our belief that while it’s critical to be across the many interesting ideas and technologies constantly popping up, we also need to focus and assess which ones can improve customer service across the likes of home loans, payments and financial advice.
The increasing importance of data – one of Reinventure’s core investment areas – as “open banking” is rolled out is one example where we feel there are increasing opportunities to better help customers plan and manage their financial futures, rather than just thinking about the threat of greater competition from fintechs.
As we saw in the US, some banks are using data to increase effectiveness, such as artificial intelligence – spotting differences in the wording of loan covenants.
Interestingly, on this most recent trip, many banks in the US and Canada were also interested in how we were preparing for and thinking about open banking, given it is further away from being mandated in North America.
Although the US - with thousands of banks and a different regulatory environment – has many differences to the Australian market, it reinforced what we have also seen in Europe: that large organisations can successfully drive significant change when there is focus, strong top-down oversight and leadership, and committed resources on a small number of initiatives.
There was also more than enough on show to reinforce that our service revolution strategy is the right one for the times.