Financial institutions are falling behind the tech curve in
delivering on the convenience consumers demand, leaving the door wide open for
Big Tech companies like Apple, Amazon and Google to become our bankers. In
November, Google redesigned its contactless payments service Google Pay,
merging the services of traditional banks with the seamless, convenient
experience users expect from the likes of Big Tech.
But there’s a catch.
Despite the elaborate smoke and mirrors that Google has put
up, one fact remains: Google is an advertising company with ads representing
71% of its revenue sources in 2019.
What happens when an advertising company now wants to be
our bank?
One must ask: What happens when an advertising company —
armed with the terabytes of data points it has harvested from our personal
emails, location data, song preferences and shopping lists — now wants to be
our bank? The answer is potentially unsettling, especially considering the
extraordinary neglect Big Tech has shown for user privacy, as seen here. And
here. And here.
As the marketplace is poked by yet another technocrat
tentacle, this time in the heart of financial services, traditional banks that
consumers and businesses once relied on find themselves at a crossroads. To
retain market share, these institutions will need to continue investing in
fintech so they can level up with convenience and personalization provided by
new competitors while preserving trust and transparency.
Traditional banks miss the digital mark
Fintech holds the potential to fundamentally transform the
financial services industry, enabling financial institutions (FIs) to operate
more efficiently and deliver superb user experiences (UX).
But there’s a digital gap holding FIs back, especially small
community banks and credit unions. Many have long struggled to compete with the
deep pockets of national banks and the tech savvy of neo and challenger banks,
like Varo and Monzo. After investing more than $1 trillion in new technology
from 2016 through 2019, the majority of banks globally have yet to see any
financial boost from digital transformation programs, according to Accenture.
Never before has this gap been more prevalent than amid the
pandemic as customers migrated online en masse. In April 2020 alone, there was
a 200% uptick in new mobile banking registrations and total mobile banking
traffic jumped 85%, according to Fidelity National Information Services (FIS).
Data is the grand prize for Big Tech, not revenue from
financial services
Naturally, Big Tech players have recognized the opportunity
to foray into financial services and flex their innovation muscles, giving
banks and credit unions a strenuous run for their money. Consumers looking to
digitize their finances must heed caution before they break up with traditional
banks and run into the arms of Big Tech.
It’s important to bear in mind that the venture into
payments and financial services is multipronged for Big Tech players. For
example, in-house payments capabilities would not just provide companies
focused on retail and commerce an additional revenue stream; it promises them
more power and control over the shopping process.
Regulations in the U.S. might restrain this invasion to an
extent, or at least limit a company’s ability to directly profit. Because let’s
face it: the Big Tech players certainly aren’t asking for the regulatory
“baggage” that comes with a bank charter.
But tech companies don’t need to profit directly from
offerings like payments and wealth management, so long as they can hoard data.
Gleaning insights on users’ spending patterns offers companies significant ROI
in the long term, informing them how a user spends their money, if they have a
mortgage, what credit cards they have, who they bank with, who they transact
with, etc.
Financial behavior also potentially includes highly personal
purchases, such as medications, insurance policies and even engagement rings.
With this laser sharp view into consumers’ wallets, imagine
how much more valuable and domineering Google’s advertising platform will
become.
Banks must lead the charge in ethical data
When it comes to the digitization of financial services, the
old adage “with great power comes great responsibility” rings true.
Customer data is an incredible tool, allowing banks to cater
to all consumers wherever they fall on the financial spectrum. For example, by
analyzing a customers’ spending habits, a bank can offer tailored solutions
that help them save, invest or spend money more wisely.
However, what if being a customer of these services means
you’re then inundated with ads that respond directly to your searches and
purchases? Or, even more insidiously, what if your bank now knows you so well
that they can create a persona for you and proactively predict your needs and
desires before even you can? That’s what the future looks like if you’re a
customer of the Bank of Google.
It’s not enough to use customer data to refine product
offerings. It must be done in a way that ensures security and privacy. By using
data to personalize services, rather than bolster revenue behind the scenes,
banks can distinguish a deeper understanding of consumer needs and gain trust.
Trust could become the weapon that banks use to defend their
throne, especially as consumers become more aware of how their data is being
used and they rebel against it. A Ponemon study on privacy and security found
that 86% of adults said they are “very concerned” about how Facebook and Google
use their personal information.
In an environment where data collection is necessary but
contentious, the main competitive advantage for banks lies in trust and
transparency. A report from nCipher Security found that consumers still
overwhelmingly trust banks with their personal information more than they do
other industries. At the same time, trust is waning for technology, with 36% of
consumers reportedly less comfortable sharing information now than a year ago,
according to PwC.
Banks are in a prime position to lead the charge on ethical
data strategy and the deployment of artificial intelligence (AI) technologies,
while still delivering what consumers need. Doing so will give them a leg up on
collecting data over Big Tech in the long term.
Looking toward a customer-centric, win-win future
The financial services industry has reached a pivotal
crossroads, with consumers being given the choice to leave traditional banks
and hand over their personal data to Big Tech conglomerates so they can enjoy
digital experiences, greater convenience and personalization.
But banks can still win back consumers if they take a
customer-centric approach to digitization.
While Big Tech collects consumer data to support their
advertising revenue, banks can win the hearts of consumers by collecting data
to drive personalization and superior UXs. This is especially true for local
community banks and credit unions, as their high-touch approach to services has
always been their core differentiator. By delivering personalized interactions
while ensuring the data collection is secure and transparent, banks can regain
market share and win the hearts of customers again.
Big Tech has written the playbook for what not to do with
our data, while also laying the framework for how to build exceptional
experiences. Even if a bank lacks the technology expertise or the deep-pocket
funding of Facebook, Google or Apple, it can partner with responsible fintechs
that understand the delicate balance between ethical data usage and superior
UXs.
When done right, everybody wins.
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