We read a tremendous amount about the fintech versus banks debate. Are collaborations between the two parties doomed to fail and are fintechs going to completely replace traditional banks? Or do banks have such a strong position on trust and data security that fintechs with their digital agility can never match? Benedikt Goetz of Railsbank shares his vision.
"Gartner even predicted in 2018 that 80% of traditional financial institutions will no longer be marketable by 2030," Goetz says. "I've read countless articles about how the future of banking needs better digital channels, needs to regain user trust and needs a better user experience. Tons are thrown against these kinds of 'transformation projects' and then the plug is pulled, as happened with ABN Amro and Moneyou, for example."
"Articles like this frustrate me because the writers do not address the core issues and necessary changes that the banking industry must now undergo. My contribution to the discussion: the industry must become 'digitally native' to stay out of the death zone predicted by Gartner."
Goetz explains, "The banking industry does not need better digital channels, but the product needs to be digitized. Like Apple did with music. Bringing music completely digital to consumers changed the entire music industry; the economics, operating and distribution models, user experience and even the legal framework behind it. That change gave new "digitally native" companies like Spotify, built from a digital core, a huge market share. Something that would not have been possible with the analog version such as CDs."
He raises another important point. "Banks do not need to regain the trust of their customers. Consumers trust the bank to keep their money safe, as they always have. The biggest problem is that traditional banks are not customer-oriented, but rather the organization is set up in such a way that they have almost no interaction with consumers."
"Banks are interested in opening as many bank accounts as possible, which will give them enough money to fuel other services, such as mortgages and insurance. This is a very different approach than offering the best user experience, as financial management app Revolut, for example, now does for more than 13 million users."
"Moreover, all these different financial products are divided into independent organizational silos. Private and business banking, transaction banking and wealth management are segmented into different branches of the bank. Each part of the business has different terms, operational models, legal obligations and a different customer approach. This model causes incredible waste of money and time for those who bacon the bank: the customer!"
"Banking as a Service, offered on a central platform and accessible to anyone who wants to offer or purchase a banking service or product, is the future."
"While many of the fintech companies are much more progressive in terms of digital customer experiences and are therefore rapidly attracting new users, their underlying business models remain anchored in the outdated financial sector. Especially when they join traditional banks. This means they face the same barriers banks face; expanding into new countries and adapting to local regulations and cultures remains very difficult. Especially at the legal level. They too have not yet cracked the 'Apple code'."
"That's why I think products and services should be the starting point to enable open banking. Those who digitize banking from the core are on the right track. Banking as a Service, offered on a central platform and accessible to anyone who wants to offer or purchase a banking service or product, is the future."
Benedikt Goetz works as a Banking as a Service specialist at Railsbank.
Source: Banks.com
