How Banks Can Leverage Trust to Compete with Fintechs

The following is a sponsored post from WS02.

Trust, the banks’ secret weapon, is starting to fail them

Banks, which had a monopoly on deposits and lending for centuries, are increasingly finding themselves in competition from fintech firms that are luring business away, mostly by delivering a better customer experience (CX). It’s a serious challenge for banks. However, banks should ideally enjoy a significant  advantage over disruptive newcomers. Banks offer trust. You can trust them with your money. Banks are well-regulated and licensed by the government. Your deposits are insured. And banks offer simple but compelling trust based CX: If you have an issue, you can walk, call, or email them for assistance.

Fintechs on the other hand, have succeeded in building trust through better financial literacy and providing more control to consumers in better managing their own finances. Fintechs also offer more visibility, transparency, better advice, and useful outputs. These are big problems for banks. The banks’ one-person-at-a-time live engagement, which historically worked so well in building trust, cannot scale anymore.

What’s needed: new, better CX for banking customers

Banks need to enable great CX to compete with fintech. They must provide the flexibility, financial literacy, products and services, and intuitive convenience that their digital competitors have brought into the marketplace. With a strong CX, banks can also reassert the competitive position they have long enjoyed. This is easier said than done, though far from impossible.

Why delivering CX can be so difficult for a bank

Generally, banks do not have a problem recognizing where they are deficient in the CX department. Where they have difficulty is in realizing their CX objectives. There are many reasons for this, including that banks almost always serve customers from multiple generations and demographics. What’s totally natural for a millennial fintech app user may be anything but intuitive for their parents (though this may have changed permanently during the pandemic). In addition, for understandable, practical reasons, a bank will usually have one app for all customers and use cases. This app will inevitably lack the feature depth of competing fintech offerings. A single app or web interface simply cannot cater to all these varying requirements.

The back-end is problematic, too. Banks are almost always hampered by rigid legacy technology. Even if they want to offer new features to customers, the process of connecting older software to user-friendly front-end interfaces is challenging and time-consuming. The Capgemini/Efma report bears this out, with 95% of banking executives saying legacy systems and outdated core banking modules inhibited their efforts to optimize data- and customer-centric growth strategies. These systemic difficulties, coupled with siloed data, also made it hard for banks to analyze data to determine what their customers even wanted.

The same obstacles that make legacy technology a barrier to great banking CX also block easy connectivity with third parties, a core element of fintech success. A bank might want to link their app with a paycheck advance service, but doing so in a fast, economical way has long been a big challenge. This is starting to change, however.

APIs and the opportunity for great banking CX

APIs give banks a path to CX that will enable them to deliver seamless CX that can compete with fintech. They do this in part by connecting the dots between applications and information silos. With API connections, bank systems and third parties can exchange information in standardized formats. For example, an e-signature tool can appear naturally in the bank app. This is invisible to the end-user, who may have no idea that they are accessing an external service provider.

API integrations improve CX by enabling the bank to implement customer-facing workflows. The customer can be guided through processes that take them across multiple applications, some of which may be outside the bank—but all of which appear in the same user interface. The API-driven workflow can automatically pull relevant information from other systems as needed.

Putting APIs to work in workflows can also cut down on handoffs between departments at the bank. These handoffs, long a mainstay of customer interaction with the bank, don’t make for good CX. With fewer handoffs, there are also fewer opportunities for errors and confusion on the part of the customer.

A further benefit of APIs is the potential to align multiple departments at the bank with a single source of customer information. If a customer is listed as John F Smith in one database at the bank and John F. Smith in another, that tiny discrepancy can cause headaches for everyone dealing with John F. Smith, as well as John F Smith himself. APIs can make this problem go away.

With APIs, banks can personalize customer experiences, too. For instance, an API can automatically look up information about a customer as they start to engage with a banking system. Based on the customer’s profile, the banking system can adapt and present the most relevant information to the customer. For example, a customer with good credit may be offered a credit card automatically. Or, a customer who owns a home might be offered a home equity loan, and so forth. This capability lends itself to new applications of Artificial Intelligence (AI) and Machine Learning (ML), which make possible entirely novel and competitive modes of CX.

API integrations help to future-proof business processes. With APIs, the bank can be agile, constantly updating internal application integrations that drive better CX as market conditions and customer expectations evolve. This includes the ability to move quickly in establishing new partnerships and channels that connect with the customer. APIs facilitate the entry of a bank into new markets.

This is not the easiest time for banks. They are facing competition in ways they never had to deal with before. However, with the smart use of APIs, banks can once again leverage their trust-based brands to build compelling new customer experiences. If banks can match fintech for CX and functionality, their superior trust reputations should enable them to compete effectively against fintech disruptors.

To learn more, download this free ebook and delve into insights and practical guidance for banks to build a mature APIM strategy that helps you craft superior customer experiences without compromising on security.