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Mambu

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Innovative fintechs, big tech providers and players in the retail or telco space. Banking is heating up as consumers flock toward digital journeys that allow them to take better control of their finances in combination with other value added services and experiences.

The banking industry has become a battleground for market share, but it isn’t just digital-only banking contenders that pose a threat to customer relationships. Instead, the competition from digital savvy players, typically from outside the banking industry such as innovative fintechs, big tech providers or players in the retail or telco space is heating up as consumers flock toward digital journeys that allow them to take better control of their finances in combination with other value added services and experiences.

Your customers may place funds with your institution, but then they usually seek to transact or utilise services offered by Fintechs or the broader ecosystem to manage their finances.

The Clearing House revealed that one in three customers have increased their usage of fintech apps, such as PayPal, Venmo, Cash App and Mint, since the beginning of the COVID-19 pandemic. The vast majority—98% in fact— are doing so because it saves them time. However, a significant 81% use fintech apps to gain better control over their money.

Another interesting note is that app usage is no longer dominated by younger generations. A recent report indicates that baby boomers are the fastest growing demographic for fintech consumption.

Consumers are integrating apps and services like these with traditional bank accounts because the majority of financial institutions aren’t offering this depth of service, but here’s the crux of the issue. As customers integrate their bank accounts with third-party apps—they really aren’t integrating them at all. Instead, they’re agreeing to connect their account with third-party services to complete a transaction or experience.

This connection resides outside the bank and requires the customer to log into a separate portal or be transferred to the application to complete the process. Worse, it brings none of the bank’s knowledge or expertise to the customer environment.

All of these factors add up to a less than pleasing consumer experience with the potential for added risk to customer financial data. But there are other factors that should also concern banks as consumers prioritise fintech app usage.

First and foremost is the fact that we’re opening new doors to consumers that lead away from the traditional financial institution. If a customer can find greater simplicity and functionality from a Fintech, what’s to stop them from eventually moving all of their funds to a digital bank?

Second is the issue of revenue. In an age of thin margins, many of these Fintech services could add support to the bank’s bottom line, if they offered a similar product. For instance, PayPal charges a fee when customers transfer payments online and also earns interest on money held in a customer’s PayPal account.

To offer a more satisfying customer experience–the kind that generates loyalty and attracts new customers—the hometown bank must play to its strengths. In short, it’s time to become a hometown digital bank, avoid getting diluted or generic, but  instead offer the ease and appeal of a Fintech with more personal touch and connectedness of a local institution. And for that, the diversity of capabilities available at fintechs or the ecosystem becomes crucial and a source of innovation that can then complement and enhance the bank’s growth strategy.

Leading Customer Experiences with Embedded Finance

As consumers turn toward digital, traditional behaviours about banking are changing.

Buy now pay later (BNPL) is an example of the type of integrated experience that consumers are seeking and almost expecting today. BNPL makes it easy to buy on credit by seamlessly integrating with the checkout process of the online store. BNPL has a particular appeal with younger generations. The use among Gen Z has grown six-fold since 2019 and millennial usage has doubled.

However, BNPL raises some big questions that the industry has to answer. No matter how easy it may be to click that big “buy now, pay later” button, BNPL as a third-party service adds complexity to the customer experience.

A recent survey of 2,000 consumers commissioned by Barclays revealed that 39% of respondents lacked a full understanding of how BNPL works. The Barclays study also indicated that credit checks were not always carried out by issuers, putting customers at risk of being unable to pay back the loan.

This presents a great opportunity to Banks, not only they now have an option to participate in the finance at the point of sale, giving that digital hometown bank the seeked appeal. But most importantly, when a financial institution offers a service, such as BNPL, they add rigour and confidence to the process. Because these institutions are bound by rigid regulations, banks must ensure that credit is extended fairly and wisely. Banks also have a vested interest in protecting the customer’s financial health, which brings us back to how banks will become a hometown digital bank.

By offering the integrated digital services their customers want to use, financial institutions are not only simplifying financial management. They’re building stronger relationships by helping to ensure a more fiscally sound future for the customers they serve.

It’s the ease and convenience of digital offered with all of the connected appeal of the local branch, and what customer doesn’t want that?


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Cyrus Taheri
Cyrus leverages Mambu's ecosystem to drive growth and differentiation in the North American market. He heads the Partnerships team in NAM, where he helps shaping locally-relevant commercial models to bring innovation to partners and customers.
Cyrus Taheri