As financial institutions strive to keep up with the ongoing march of FinTech, a ‘trust gap’ still remains within finance – and incumbents may be able to use it to their advantage.
Over the past decade or so, challenger banks like Monzo have entered the market and snapped up a significant share of customers. In general, FinTech offers the simplicity, convenience and personalised experience users crave. Modern day consumers are – rightly – fickle, and moving money is easier than ever, so nobody is expected to stay with a bank just because they have been there for 20 years.
An evolving landscape
Well used to competing with each other, incumbents are now pitted against payment providers, ecommerce players, fintechs, technology giants and even ride hailing companies. With mobile and online channels, consumers now compare the user experience across every sector – so managing your bank account is expected to be as simple as booking a holiday.
Popularity of technology companies offering financial products is beginning to grow. EY’s Global Fintech Adoption Index shows that 68% of consumers would consider a non-financial services company for their financial services needs, while surveys in India have shown Google outranks all banks as the company most trusted by consumers to “act in their best financial interest”.
Does tradition equal trust?
Despite the impact of the 2008 crash and the branding challenges that remain for incumbents over a decade later, studies suggest banks are still more trusted than other sectors. nCipher Security research found 52% of customers trust their banks specifically with data. When asked about sectors in general, a third trust financial institutions to protect their data, while only 23% trusted the legal profession and 20% trusted cellular providers.
Coupled with this, the world of technology has had its own issues, from security breaches to Cambridge Analytica, that have left consumers cautious and widened the trust gap between these flashy new companies and sometimes centuries-old institutions. FinTechs can have a hard time creating trust in the first place, which is why despite widespread adoption, few of these consumers are making a FinTech their “main” bank account.
Another issue for FinTechs in building trust is that the touchpoints they offer consumers differs significantly from what we are used to seeing in financial services. FinTechs are often successful through doing one thing very well (like foreign exchange or savings pots), so the contact customers have with them may be limited.
This contact is also often solely digital, so customers lack the important human relationships they are still very much used to with bank branches, for example. Even in 2020, trust in the finance world can still be based on a firm handshake (though not literally right now). Large challengers have recognised this, with Revolut and Starling opening contact centres and hiring a myriad customer service staff to offer the human element, but for banks and building societies this really is their bread and butter.
No longer trust, but necessity
With the COVID-19 pandemic, the goalposts have shifted again. The global pandemic has put a huge strain on individuals and businesses. Shops had to close and the WHO discouraged the use of cash when we do shop to prevent the spread of the virus, and advised contactless payments where possible. FinTech, therefore, was becoming even more important.
Research by deVere Group outlined that coronavirus had led to a 72% increase in use of financial apps over just one week. Contactless transaction limits had been raised in the UK and globally. Customers turned to FinTech not necessarily because trust increased over the past few months, but because it has become a necessary way to make payments and manage their money.
As remote working increasingly has become the new norm, with the proliferation of Zoom and other tools, so too has remote banking. This does present some challenges as those touch points and human aspects banking took advantage of are no longer there – but it has also been an opportunity for incumbents to show they can still be there for their customers, and to convert more users to their digital solutions.
The last few months have been a test of resilience, and the chance to prove incumbents can withstand a huge influx of app use and digital queries from worried customers. It is imperative to make sure digital infrastructure can stand the test of time – and, if it can’t, to find out which platform to implement or collaborate with.
They must also take this opportunity to show their resilience as an organisation. Many stories in the press have been speculating challenger banks might ‘go under’ or at least be acquired, and while this has been heavily refuted, it speaks to the trust gap that still exists in the customer’s mind. Now is the time for incumbents to show their support and reliability in the way they treat their customers – as many already have done, freezing interest on overdrafts and supporting government initiatives like small business loans.
Closing the gap
The lesson here is that, unsurprisingly, we all want the best of both worlds. Customers are seeking a blend of the trust and experience offered by incumbents alongside the fresh, innovative tech solutions offered by their FinTech competitors. It’s also true that no sector is immune to negativity, and while banks have been rebuilding their reputations over the years, the technology industry has more recently had to deal with mistrust.
Banks and larger FIs can take advantage of the trust gap by working together with technology companies to transform their services, retaining their solid brand and customer base while moving with the times. Banks are in a strong position as they already ‘own’ the customer so acquisition cost is minimal, and they also have the capital to invest in new solutions as well as the industry knowledge and experience to make sure they choose the right ones.
New technologies like machine learning can help them even better understand their customers and address issues – especially since they have often decades worth of data customers have relatively happily handed over – and FinTechs and technology companies can actually provide ready made solutions fresh out of the oven to save time, money and hours of unsuccessful pilots. It may sound trite that “collaboration is key”, but it could be the difference between succumbing to a challenger bank and being a true banking challenger.
For more banking insights, check out our hub.
