The bank of the future
During the past 20 years, mobile services have changed so much in our lives - from ordering a taxi, eating out, or simply the way that we communicate with one another. Relatively speaking, banks have lagged behind this digital progress, but it seems like this is now changing. This change is not just driven by society expecting a certain level of service from the financial sector (fast, personal, easy), but also because the technology that makes it all possible already exists. Granted, we do have fintechs in Europe, such as Revolut, but it is in Asia where the digitalization of banks is most evident.
Take Ant Financial, for example. Valued at 150 billion euros, it is the world’s largest fintech and rooted in Alipay, the payment app founded in 2004 by Alibaba. In 2016, Ant Financial set up MYbank, which uses Alipay data to set interest rates and limits when extending business loans. Ant Financial has also founded Ant Fortune, a platform that gives access to Yu’e Bao, the world’s biggest money-market fund. Using the associated app, customers can easily invest their savings in money market funds (MMFs).
Neobanks such as MYbank, which are fully digitalized and reach their customers via mobile services, are posing a number of challenges to traditional banks. At the heart of the relationship between an individual and their bank is the checking, or current, account. It is from there that a bank can offer products such as a business loan or a mortgage. One of the challenges facing traditional banks is the ambition that parties such as Ant Financial have to exploit its digital platform and expand to countries outside China, where it could target specific audiences to offer both financial and non-financial services. As a result, the customer would no longer need a current account, meaning that the traditional bank will lose valuable contact with the customer – and with it some opportunities to tout its products. Another challenge for traditional banks is the ambition of a tech giant in Europe – such as Amazon, for example – to enter financial services by setting up a neobank. Attracted by more favorable interest rates on savings and the quicker approval of loans, customers of traditional banks might be tempted to migrate en masse to such a neobank.
In a recent interview with The Economist Radio, Brian Moyniham, CEO of Bank of America (BoA), said he did not see fintechs so much as a threat to traditional banks but rather as a nudge in the right direction. By way of illustration he revealed that BoA analyzed how fintechs can approve a loan in 35 seconds, while BoA needs 20 days. On the back of this analysis, BoA has accelerated its internal processes so that loans to small businesses are now processed in two days, rather than 20. In essence, fintechs provided the stimulus for BoA to accelerate its processes and BoA succeeded in doing so.
The best way for traditional banks to meet these challenges is to do so in collaboration with their customers who are the major consumers of mobile services. By analyzing the wishes of these customers, and then trying to give them what they want, any huge migration of customers from traditional banks to neobanks can be prevented. Combine this with allowing the fintechs to nudge them in the right direction, and you get a win-win situation. Traditional banks will retain their customers and the customers will get better service.