"It isn't really a strategy if everyone else would choose to do it, right? That just means it's common sense.” -Jason Henrichs
Today’s fintech innovators are like the pioneers of the Old West, except instead of encountering a vast and desolate landscape, they’re finding a jam-packed digital marketplace. For financial institutions, this intensely crowded world of fintech is intimidating.
How do you gain the confidence to compete? How do you avoid just doing the same thing everyone else is already doing? How do you stand out?
James Robert Lay discussed these questions with Jason Henrichs, CEO at Alloy Labs Alliance and is a trailblazer in digital financial services, on the Banking on Digital Growth Podcast.
Do You Have a Fintech Strategy?
A recent Finastra survey found that 85% of all banks say they’re planning to have a banking as a service (BaaS) strategy in place within the next 18 months.
Sounds great, right?
Not so fast, says Jason. Having a passing thought about fintech isn’t the same as formulating a strategy. “Part of me believes that just because they thought of fintech, they now believe they have a strategy,” he says.
The “tech” part of fintech feels so innovative that it sometimes tricks people into believing that it must be inherently strategic. But technology itself is not a strategy. It’s just a tool, waiting for humans to develop a strategy to use it.
Jason recommends the book Competitive Strategy as required reading for every bank CEO and executive. It explains the difference between having vague business ideas and having actual, fleshed-out strategies with actionable steps that will build a competitive advantage.
A Brief History of Competition in Banking
Before we look at the future of banking, it helps to look back at the past. Historically, small community banks competed with the biggest banks in the world by staying connected to their local communities.
Although all banks of all sizes essentially offered the same services, it was helpful to have a local branch of your hometown bank. You could walk into a bank, speak with a human, and accomplish what you needed to accomplish fairly quickly. Small banks had a competitive advantage when they blanketed their small communities with branch buildings.
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In today’s internet-infused world, they’ve lost this competitive advantage. Goodbye, brick and mortar! The playing field is all digital, all the time, all over the world. Fintech creates a crowded digital environment where it’s difficult to display any type of competitive advantage.
Now a financial brand’s strategy is more important than ever, yet many companies still struggle to strategize. They purchase tools, pay tech people to deal with all of the technology, cross their fingers, and hope for the best. That’s not enough to survive, let alone thrive.
To repeat: Technology is not a strategy.
It can’t fix deeper problems in your organization. It can’t make your customers love you, solve your profitability challenges, or imbue your employees with a shared sense of purpose.
Technology is “digital lipstick on the analog pig,” as Jason says. It might make things easier, but it doesn’t solve the underlying issues that created the problem in the first place.
Differentiation Through the Customer Experience
Consider an issue like customer dissatisfaction with checking accounts. From the bank’s perspective, it would be easy to assume that customers want a fancy new website or app that makes it easier for them to use their checking accounts. This investment in technology may or may not improve customer satisfaction scores.
You could even survey your customers about what they want to get out of their checking accounts. They’ll probably say, “I don’t know. Lower fees? No overdraft fees? I’m not sure.” They don’t even know what’s possible so they don’t know what to suggest. They want a better experience, but they’re not sure how.
They don’t know what they don’t know.
This was the concept behind the original iPhone, which Steve Jobs developed without doing extensive market research. He took time to understand the roots of customers’ problems with previous devices. The issue was primarily a lack of user-friendliness. So he created an entirely new and intuitive customer experience for using a handheld device. He removed the friction.
The financial industry has a major customer experience challenge: Nobody likes your services. More specifically, nobody wakes up in the morning and says, “Gee, you know what would be awesome today? Refinancing my mortgage!”
Instead, they encounter your services through their life-changing moments. They had a baby and they need a bigger car. Their kids need college savings plans. They’re retiring. They’re getting divorced. Each of these situations comes with extensive financial implications that bring them into a financial company’s sphere for some type of interaction.
Rocket Mortgage is an example of a company that’s exceptional at connecting with people at turning points in their lives. They make it easy to apply and get a decision extremely quickly so someone can accelerate boldly into a new stage in their life. This is just one of many companies solidifying a niche in the financial industry by providing a smooth, frictionless approach to the customer experience.
Fintech Roadblocks and Lessons Learned
Jason says one of the most important lessons his company has learned about fintech is that some people just hate it. For example, they noticed pent-up anger at banks toward Zelle, the digital payments network. Bank employees typically felt that Zelle was a product that was being shoved down their throats, and they reported that their customers didn’t like using it either.
Another example is Venmo. Some people love it and some hate it. Jason met a well-known consultant in the community banking industry who said they’ve never used Venmo and worry that it puts people at risk of identity theft. This consultant has a high level of influence with bank executives, so their distaste for Venmo will likely have far-reaching implications.
Jason has also seen interesting examples that come from beyond the core financial world. For example, Get Carefull is a platform that helps caregivers manage expenses for aging Americans. Their primary concern is helping older people stay safe and healthy.
Get Carefull shared academic research showing that you can diagnose dementia 5 to 7 years earlier through financial data than through traditional clinical methods. The research indicated that throughout the progression of dementia, people tended to exhibit certain financial behaviors that signaled the onset of the disease.
As a result, Jason and his team recommended that Get Carefull partner with banks. The organization was surprised to receive this feedback until further discussion helped them understand that banking is all about trust.
Stress and Financial Wellbeing
About 85% of Americans feel constantly stressed and their #1 source of stress is money. Running out of money is one of the top concerns of all bank customers, yet the banks themselves tend to focus on having money, not running out of money.
This presents an enormous opportunity for financial brands to connect with their customers on the topic of financial stability. The key is to stop lecturing people about managing their money wisely, which is the traditional approach, and start listening to customers’ real-world concerns.
Many banks now produce niche branded podcasts and blog posts acknowledging common worries and offering helpful tips. People can ask questions, connect with them on Twitter, engage in back-and-forth discussions on social media, and much more.
Strategic Thinking and Having a Big Vision
The biggest takeaway here is that every bank, big and small, must develop a vision for the future that goes beyond buying tools and technology. Every financial brand needs to develop a big-picture vision, plus a solid strategy for reaching it.
Jason encourages financial brands to start small, do a little testing, and don’t worry too much about failing. Pay attention to progress. Learn from things that don’t work.
Then take each learning experience, build from it, and lean into what was good about it. Keep doing smaller and bigger projects that move you closer to your big vision.
Working strategically takes time, commitment, and courage, but it’s the secret to running a financial brand with the strength to last 100 years into the future.
This article was originally published on June 24, 2022. All content © 2023 by Digital Growth Institute and may not be reproduced by any means without permission.