How are banks coping with the FinTech disruption?
The FinTech revolution is creating innovative digital pathways that are competing in the same marketplace for the delivery of financial services as traditional banking and financial services. Over 10,000 FinTech services are expected to be fully rolled out by 2020. These include mobile banking apps, P2P payment mobile apps, mobile trading on commodities exchanges, digital wallets such as Apple’s AAPL and Google’s GOOG, financial advisory and robo-advisor sites including LearnVest and Betterment, and all-in-one money management tools such as Mint and Level.
Pennsylvania Business Central asked three bankers from our region how their banks were dealing with these disruptive changes: Gregory Hayes, Sr. EVP and COO, Kish Bank; Jon Rockey, president, central region, Northwest Bank; and Tom Trebilcock, senior vice president, mobile and emerging payments, PNC Financial Services Group.
Hayes: The volume of money being invested in FinTechs is creating a lot of ‘noise’ in our industry, noise too loud to ignore. We’re focused on watching what the FinTech disruption means to Kish.
Some of the things we’re seeing is the process of acquiring customers is becoming easier. The way in which accounts are opened, the way in which customers communicate with their financial providers is getting a lot easier. As FinTech technologies become more prevalent and proven, we’ll be able to adopt them more safely and at a lower cost than when they were initially launched. Being an early adopter has its advantages, but also its risks.
A prime example is Venmo. In 2014, Paypal acquired Venmo, a payment app popular with the younger generation, but it soon became evident that Paypal didn’t understand how it was being used. Customers were using Venmo for such things as making purchases from Craig’s List. Unlike Paypal where money transfers go through the federal automatic clearing house (ACH) and where money is usually sent to people you know, Venmo transactions don’t pass through the ACH. You get a text message saying you received money, but that money is not in your account yet so senders can reverse the payment, which has happened many times. Paypal got a lot of blowback because fraud was invading its solution. So, we need to be very careful about the volume of disrupters out there because we don’t necessarily understand how they all will be used by consumers.
Trebilcock: Banks, like any other business, must keep up with demands by hiring the most tech-savvy workers. PNC is constantly recruiting the best talent and investing on keeping and developing that talent. An example is PNC’s recent API Fest (Application Programming Interface), which brought together more than 200 employees who competed in teams to develop new and possibly game-changing applications for customers in the future.
PNC conducts internal training for awareness and use of technology and will likely continue that in the future.
PBC: In the Digital Age, information is gold. Advanced analytics, personalization and improving the customer experience are at the forefront of many banks’ marketing strategies. What has your bank done to improve the use of customer insight to deliver the right products and services to the right customers?
Rockey: At Northwest, customer experience has been a priority since our inception more than 120 years ago—it’s at the root of everything we do.
We pay close attention to customer experience data from third-parties like JD Power and have also implemented our own customer experience program where anonymous, existing Northwest customers complete surveys each month based on their experiences in our branches.
We analyze this data and recognize the efforts of our branch and business line teams who go above and beyond to deliver products and services that are meeting our customers’ needs. If, through the data, we find that we’re not doing that, we use it to improve.
This year, we’ve also invested in technology that makes it easier for our bank, investment and insurance services representatives to share customer information - better connecting customers to the experts who can deliver the services or advice they’re looking for.
PBC: Next year is set to be a game changer for retail banking in Europe. When the European Union Revised Payment Service Directive (PSD2) becomes implemented, banks’ will lose their monopoly on their customer’s account information and payment services. PSD2 will enable bank customers, both consumers and businesses, to use third-party providers to manage their finances, for example, using Facebook or Google to pay their bills and making P2P transfers directly, but they will still have their money safely deposited in their bank account. Banks will no longer be competing only against other banks, but everyone offering financial services. Do you think this will happen in the U.S.?
Hayes: In the U.S., the trends are a little different in that the payment networks are going to own the transmission of payments. For Facebook to engage in P2P or B2B payments for any of the other structures, the federal government is going to be clear that those payments must flow through the financial system and the safeguards and infrastructure that is built within the financial system.
Although Republicans want to repeal Dodd-Frank, the legislation that replaces it will still predominately be built on protecting consumers rather than businesses. So, it won’t be focused on protecting Facebook but on protecting Facebook’s users.
PBC: According to Gallup research, the continual expansion of digital platform strategy is not an optimal or cost-effective method for engaging customers. Before expanding, Gallup recommends that banks should satisfy customers in existing channels. Do you agree?
Trebilcock: Branches still matter and branch convenience still remains a top factor when people choose their primary bank. However, it remains true that digital channels are fast becoming the way most customers interact with the bank and handle their transactions. As an example, more than half (60 percent) of our customers now use non-branch channels, e.g., online, mobile and ATM, for the majority of their transactions. This compares to 39 percent just four years ago. So, we know people want to use these channels.
As routine digital transactions increase, PNC is interested in developing conversations with customers that only one-on-one conversations can elicit to determine how best to suit customer needs when it comes to pivotal life events such as marriage, birth of a child, education and home purchases, which are all best reserved for humans.
Rockey: As technology and our customers evolve, findings like these will probably change. We know it’s important to create a balance between traditional channels, like the branch, and evolving technologies and customer preferences. Increasingly, people will become more comfortable online—and more and more will adopt the technology. It’s about the balance and investing in a way that suits your customers through this evolution that’s crucial. .