The 4 Pillars of Successful Fintech-Customer Relationships
FinTechs have a new way of approaching the financial industry, unbound by traditional operations and processes.
As a result, they can provide products and services that are faster, easier, and/or cheaper than that which traditional banks can deliver, but what are the key elements FinTechs should consider in this offering?
Here Scott Woepke, Head of Financial Services Strategy at Acxiom, outlines four pillars of fintech-customer relationships that will help fintech providers grow their market share.
Fintech companies are disrupting the financial services industry because they’re not tied to legacy operations, traditional organisational rules and established structures. They’re thinking differently, experimenting, and exploiting data to develop products and services that are easier to use, convenient, and sometimes cheaper than those of traditional banks.
Like all businesses though, fintech companies must build and nurture relationships with their customers.
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Usefulness
Customers don’t like to switch banks – only 3% of personal and 4% of business customers switch to a different provider in any year. They’re often risk averse and it’s difficult to convince them of the benefit. Historically, the common method employed to encourage people to switch banks is to offer a more competitive interest rate. However, for many customers, a competing offer of marginally more money or savings is unlikely to win them over. There is a zone of indifference where small price changes have little impact on perceived value.
So, it’s a tough sell and customers certainly won’t sign up to a new current account or move to an incumbent financial services provider simply because it’s digital. Having a shiny new website or phone app isn’t enough.
It’s important that fintech companies understand the problem they’re helping to solve, and that the solution fits into customers’ daily lives. Fintech products must make it easier for people to manage their finances and people will build relationships with businesses that improve their efficiency. Customers are attracted to fintech companies that help them manage their money better by, for example, helping them understand their income and expenditure or using AI to make real time recommendations. For the fintech-customer relationship to succeed, the usefulness of the product must be compelling.
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Ease of use
All things being equal, customers are unlikely to switch to a new provider offering a similar banking experience. A YouGov’s study indicates that one in five (21%) Brits have considered switching current account but ultimately have not gone through with it. This was despite compelling cash incentives and the Competition and Markets Authority (CMA) promoting a seven-day switching service.
So, to encourage customers to leave behind the traditional products and services they’re used to, fintech companies must create alternatives that are easier to use and access. The user experience and customer journey must be better than those provided by traditional financial institutions.
To motivate a switch, fintech companies must deliver a compelling and differentiated value proposition that may provide better pricing, but delivers accessibility, ease-of-use, convenience, and loyalty programs. Some fintech companies have also been successful with customer acquisition by offering new tools that introduce discipline and management of savings that help customers reach their financial goals – like saving for a holiday or to buy a car or home. A well-designed and compelling financial fitness programme will not only attract new customers, but it will help build much deeper relationships.
To motivate a switch, fintech companies must deliver a compelling and differentiated value proposition that may provide better pricing, but delivers accessibility, ease-of-use, convenience, and loyalty programs.
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Brand image
Only 55% of Britons trust banks, and only 36% think they work in their customers’ interest, so brand and reputation play important roles are intangible assets with economic value. A strong brand image will generate trust and establish perceptions of quality, value and satisfaction. Fintech companies must invest in increasing their brand awareness as customers are unlikely to open an account at a bank they’ve never heard of.
From a marketing perspective, it’s important to understand the importance of timing, offers, and channels for communication. In terms of timing, there are windows when customers are more likely to switch, for example, when they’re unhappy with their current provider. Lifestyle changes such as starting a family, moving home or getting divorced can also provide motivation for a change. The offer (or proposition) is very influential in the customer’s decision to switch providers. Finally, the channel of communication is critical and it’s important to remember mobile is the preferred channel for banking and content consumption.
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Trust
Handling money and customer data are the bread and butter of fintech businesses, so earning customers’ trust is essential. Any perception of risk will negatively affect the adoption of new technology. The importance of trust can vary by product (i.e. borrowing vs. investing) based on customers’ sensitivity about the service.
To build trust, fintech providers must ensure they operate within the laws and regulations of the countries where they are based. New technology is breaking down geographical boundaries, but it’s vital for the fintech-customer relationship that customers understand their legal protections and can trust that their assets are safe.
In the UK, the government has played a role in the definition of the technology and has provided financial backing of the infrastructure, making fintech services more acceptable to potential customers. Since January 2018, PSD2 and Open Banking have forced the UK’s nine biggest banks to release their data in a secure, standardised form, so that it can be shared more easily between authorised organisations online.
While fintech companies represent a threat to the incumbent financial services providers, they still have a lot of work ahead to overcome the customer inertia that exists with their providers. Understanding customer perceptions and needs will be an important factor to success and help develop a long term, sustainable fintech-customer relationship.