This post is from Steve Satchell of Teleperformance USA.
It’s no secret that the global banking industry is facing a wave of digital transformation that may see some of the biggest brands in the industry facing an uncertain future. The emergence of Financial Technology (FinTech) companies that create customer-centric banking solutions using modern technology systems has completely changed the industry.
Companies like Chime are a great example of what is changing in banking today. They just raised a further $70m in Series Funding, which takes them to a present value of about $500m and there are some solid reasons why investors think companies like Chime have a strong future.
Think about bank fees for a start. In regular banks, if your balance falls below a predetermined limit, or you drop into the red and have an overdraft that was not authorized, then your bank will almost certainly charge a fee. American bank customers paid $34.3bn in overdraft fees in 2017. That’s over $100 for every single man, woman, and child in the country!
Many millennial customers are deeply affected by these fees. With a variable or precarious regular income it is easy to drop a few dollars into the red and then to find that the bank has made a charge that was bigger the overdraft. MIllennials are far less connected to the idea of physical bank branches so the idea of a bank that only exists as an app – and one that does not charge fees – is becoming extremely attractive.
Chime has other innovative features, such as making the value of a check available in your account before they have actually cleared and it is possible to create an automated savings plan – such as putting 10% of your salary aside automatically every month. Chime has only offered a full range of retail banking services for two years, but they already operate over 1 million accounts.
The really important thing to note about companies like Chime is that they are focused on customer-centricity – not replicating how banks have operated for hundreds of years. Here is a retail banking service that has been designed to fix all the things that customers hate about their bank – such as those punitive overdraft fees.
The traditional banks face a dilemma. They have huge branch networks and expensive legacy technology systems that may have been designed decades ago. Even if they want to launch radical new services they may find that their internal systems just cannot handle it. Should they try to compete with the FinTech companies or just hope that their large customer base will stay because these brands have always been around?
I don’t think the second suggestion is even an option. Traditional retail banks need to be more customer-centric, but I don’t think that most of them can change fast enough – certainly not at the pace that the FinTech companies are changing the market. The ideal solution appears to be for a major bank to buy an exciting FinTech and to run it as a separate brand, but integrating the same ideas, approach, and technology into the parent brand over time.
The traditional retail banks have millions of customers. They have the ability to promote new services to a large pool of customers and they must embrace this focus on customer-centricity if they want to survive because there will be more companies like Chime. 1m accounts today could easily become 10m accounts next year. Embracing what the customer wants has to be the future for banking in America today.
Photo by Brook Ward licensed under Creative Commons.