Customer Experience as a Competitive Advantage: How FinTech Startups Forever Changed User Attitudes in Banking

May 22, 2017     By : Artashes Vardanyan

Customer Experience as a Competitive Advantage: How FinTech Startups Forever Changed User Attitudes in Banking

The evolution of the customer service in traditional banking was very slow during the past few decades. One of the milestones in that matter was probably the invention of the ATM in 1967 for the automation of bank-teller operations. Then the customer support in branches started to migrate to telephone banking, followed by the smartphone era that changed the approach of banks in dealing with customers.

Mobile technologies have significantly affected the financial services industry, forcing institutional players to tailor their businesses to survive in the mobile-first environment. Nowadays, the progress of customer service and the speed of its change are very fast. In fact, Forrester predicts that in 2017, 108 million customers in the United States alone will be using mobile banking.

Innovation in customer service is becoming a huge priority for banks; the world today is changing rapidly and everything we know is getting digitized. Digital banking solutions are making the life of common citizens very easy as there is no need to stand in the queue for long hours to get what you need, or call the broker to buy few stocks of Facebook, or wait few days for a loan officer to analyze your business feasibility.

In a 2015 survey, Bain & Company questioned 111K customers about what they would miss the most: their mobile phone or wallet. More than half of the customers chose their mobile phones over their wallets, proving how much mobile and digital changed the world and, particularly, the attitude to money and everyday personal finance.

But did traditional banking manage to transform as quickly as customers changed their attitudes? Potentially, NO. And, as a result, FinTech startups were able to gain substantial traction among consumers. Modern FinTech solutions nowadays allow customers to enjoy a cup of coffee while getting the payment done with a few clicks on their smartphone screens.

FinTech startups went even further, bringing value-added services in areas such as:

  • Lending (Ex.: Digitized P2P mobile platforms for lending money)
  • Trading and investments (mobile solutions helping you to buy stocks or commodities within seconds)
  • PFM apps powered by AI that improve budgeting and savings plans

Millennials take full advantage of the evolution of customer experience

Not surprisingly, millennials have embarked upon these digital banking solutions, which are changing continuously. Millennials today are more inclined towards FinTech companies offering digitized and mobile-first financial products. In fact, 44% of millennials (VS 27% of the general US population) use alternative digital banking products, choosing them over traditional banking because of the ease of use and credibility.

Moreover, a very significant portion of millennials will switch their bank if they can’t bank on their mobile.

Despite the slower digitization speed compared to FinTech startups, banks have also changed a lot:

  • Money transfers have become easier. Just a few years ago, customers had to go to the branches to perform a funds transfer. It was undoubtedly inconvenient for customers as they had to wait hours in the queue to get the job done. Nowadays, however, these problems have been largely eliminated thanks to significantly improved online banking solutions and banks’ mobile apps. Solutions such as TransferWise and Stripe have also been gaining ground in parallel, establishing a strong presence despite their novelty. 
  • Some time ago, there were piggy banks to teach children (and sometimes adults) to save money. Now, those can be no more than attributes of an extravagant design as PFM platforms developed by FinTech startups have reached every member of the family, enabling wise financial behavior. Those solutions use AI and smart algorithms to enable invisible and painless saving process (some examples include Looma, Qapital, Digit, and Empower to name a few). 
  • Previously, financially active people had to visit a branch or hire a broker to buy/invest in stocks or commodities (whether HNWI or regular consumers). Those times, fortunately, are history now, as financial institutions have moved towards sophisticated trading and investment solutions with the help of the FinTech community. Through sets of APIs, FinTech startups enable access to rich aggregated data, powering gradual improvement of every next generation of solutions (robo-advisors wouldn’t become mundane without mutual need in better solutions). The beauty of this didn’t end on corporate investments and services for HNWI though. Solutions like Robinhood and Acorns democratized investments for large groups of population, cutting out middlemen and applying advanced technology for the benefit of the consumer.

Clearly, FinTech startups played a significant role in digitizing banking processes, forcing institutions to refine their approach to delivering financial services. Banks are also undergoing inner digital transformation and automating processes at a scale of whole departments, cutting down operational and administrative costs.

But the advantages of digital banking go way beyond saving cost and time. Customers are the biggest beneficiaries when it comes to the digitization of banking processes. Customers can today get their banking activities done within seconds in a secure and safe way.

On top of security and speed of services, customers can also get quality and hyper-personalized banking experience. Using big data analytics, banks are delivering specific services relevant to personal needs. Hyper-personalized experiences, in fact, are perceived as one of the competitive advantages that allowed FinTechs to set foot in one’s phone and mind. Consumer-friendly mobile FinTech applications have quite significant adoption rates, – 16.5% in the US, for example.

Better customer support has also worked to the advantage of FinTech startups, where the use of business intelligence and automation software opens doors to customers’ hearts through prompt troubleshooting. Virtual assistance and live chat features are rapidly becoming an important part of customer support operations. They are intended to help customers without human intervention, stepping on the toes of bank branches.

The direction of the development is clear – it’s either mobile-native, or it’s not relevant

Customers are becoming more inclined to mobile-first and feature-rich banking solutions, and seem to trust them more and more every day. Expectations for improved digital banking experiences rise, and new business models emerge in response. They affect all areas of the financial services industry, leaving chances only to those assuring the most convenient and user-friendly experience with a financial service of any complexity.

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Artashes Vardanyan

Artashes Vardanyan

Director at Microsoft Innovation Center Armenia
Artashes Vardanyan is a startup enthusiast, currently acting as a Director at the Microsoft Innovation Center Armenia (MIC Armenia), a public-private partnership project that combines resources of numerous partners and founders: Microsoft, USAID, RA Government, State Engineering University of Armenia and Enterprise Incubator Foundation, and an advisor to a FinTech startup Looma.

He is passionate about highly disruptive tech that is bridging traditional banking with new and disruptive technologies. Artashes has a broad experience from scaling early stage startups to building business operations, from tech to behavioral finance.
Artashes Vardanyan