Traditional banks have long reigned over the financial services industry. When the 2008 financial crisis shook the economy this began to shift, and new restrictions were put in place to pave the way for disruptors in the finance industry and challenger banks to emerge. The new contenders — operating on tech-powered platforms and with digital features — are set to offer new-age banking services that capitalize on “data-fueled, hyper-personalized experiences in real-time.”
A phrase used in the new Capgemini World Fintech Report 2020 that captures the appeal of the innovative service and challenger banks. It also gives insight into the likely reason why 40 percent of Gen Z customers – notoriously tech-savvy and demanding – are unsatisfied with the existing services at their current banks and are ready to leave within the next year: they simply don’t feel catered to.
Challenger banks also possess the potential to tap into the masses within the unbanked community. With emerging tech seamlessly integrated into financial services, these new ways of banking can address the universal issue of disparity in financial inclusion. Globally, close to one-third of adults — 1.7 billion people — remain unbanked.
Fintech can leverage technology to build a bridge to the unbanked community with financial services. For example, individuals who don’t have a bank account are still able to utilize banking services, like making online transactions or doing direct debits. All of this is possible with the use of a sort code and account number.
Fintech makes a difference beyond banking
In addition to expanding the digital reach of financial services like banking, fintech is all about user-centric services and control.
Fintech not only offers a suite of conventional banking services with increased convenience, it also includes an array of non-traditional banking products that enable customers to gain better control of their finances. These same added features are also the same reasons that challenger banks have risen in popularity among customers.
For instance, fintech thrives on its user-friendly interface and secure apps that allow users to access financial services with just a few taps.
German neobank N26 is a good example when it comes to the innovative spirit in fintech. The challenger bank’s app enables customers to set withdrawal limits, travel updates, and freeze or unfreeze their cards. Customers are also able to access real-time statistics of expenditure and given the autonomy to organize their finances into categories like separating funds for monthly bills or for an upcoming holiday.
N26 also brings in traditional financial products such as joint accounts but with a tech twist: Last year, the German fintech launched Shared Spaces — an alternative to join accounts — in the US. The feature allows for added flexibility, appealing to groups of users that may temporarily require a shared account. For example, splitting bills and rents with housemates, or sharing the cost of a gift for a mutual friend.
In essence, fintech breathes life and innovation into an age-old industry, and at a time of crisis, challenger banks have proved their value in aiding communities. Square was one of the fintech companies that received approval from the US federal government to process the Paycheck Protection Program (PPP) applications for SMEs (small and medium-sized enterprises).
With Square’s existing tech infrastructure, the company was able to disburse emergency relief funds for 60,000 applications much faster than any bank.
Karen Kerrigan, CEO of the Small Business and Entrepreneurship Council, stated fintech companies like “Square, PayPal, Intuit, Kabbage, and others,” who are all authorized lenders within the PPP program, have the added advantage of technologies to help streamline the application processes.
“These companies serve millions of small business owners, many of whom are sole proprietorships and mom and pops. They have the AI and advanced technology to process these loans, as well as strong relationships with many borrowers who regularly use their concierge-type services,” Kerrigan told CNBC.
In essence, the pandemic outbreak highlighted the benefits of neobanks baked with advanced technologies in delivering financial services. Fintech and incumbent banks may be competing in terms of innovation, scalability, embedded functionality, and regulations, but customer experience will be the tie-breaker in this space.
Check out our blog here.