SEPTEMBER - 20199their preferences are changing based on experiences with other mobile and online companies. Today, customers increasingly expect digital platforms similar to those of Amazon and Netflix and less on the offerings of a banking competitor across the street.With easy access to data, free information flow, and abundant competition, consumers are able to make decisions that are far more informed and faster. These same factors have also turned bank products into commodities.Due to the commoditization of products and antiquated banking systems, disrupters are seizing opportunities to chip away or even cause a landslide in market share as younger and more diverse customers search out financial service providers. New digital banks and startups have the advantage of building from scratch and targeting this new mobile first consumer. The same study from Novantas (Figure 2B) shows that customers are also willing to consider non-bank technology companies as viable alternatives to traditional banks.While frequent online shoppers and Millennials are the most likely groups to open checking accounts with technology companies, 55 percent of Gen X and 32 percent of Baby Boomers are also open to the idea. This poses an increased attrition risk for traditional brick and mortar banks if their customers look for other avenues due to lack of mobile capabilities, high fees, issues related to mergers, or other pain points. Large tech companies are in a unique position given their capabilities, expertise, and funding. Apple, Google, Facebook, and Amazon all have a long-term and loyal established customer base and tapping into a small portion of this foundation could significantly erode revenue streams from traditional banks. Relative newcomers Chime and Moven have strong mobile-first designs with 5-star ratings in the Apple App Store. Compare this to App store ratings and comments for regional and smaller bank apps and there is a stark contrast. Consumers' perception of convenience continues to move toward mobile and away from brick and mortar. Venmo, a peer-to-peer payments app now owned by PayPal, had $19 billion in transactions in 4Q18 and 17 percent YOY user growth (including PYPL). The popularity of Square also reflects this trend where Square had >100 percent YOY user growth. The staggering number of fintech startups and their ability to rethink how we deposit, save, lend, and make payments in the new world should cause all brick and mortar bank executives to consider their own prioritization and ask the following questions:- Are white label services differentiated or simply table stakes in this environment? - What is the correct pace of change for our institution?- How do we pay for these technology investments?- What is the best use of our physical network?- Do we have access to the technological expertise needed?With all of the potential variables, brick and mortar banks have to negotiate the complex tradeoffs between current needs and future investments to acquire new customers. The ability to outspend a well-funded VC supported startup and have the technical expertise is out of reach for most banks. Prioritization to integrate physical networks and digital capabilities for a seamless alignment of UI, UX, and CX should be considered.In addition, transforming the branch from a large square footage service and transaction behemoth, to a smaller, more nimble, and proactive advice-driven channel are important factors for the future. So, are brick and mortar banks or fintechs the villains of our story? Neither, because both will have to adapt and iterate quickly to ensure they are meeting consumer needs when, where, and how consumers want. There is enough space for both to thrive and form partnerships.However, traditional banks have to contend with the cost of new technology and accelerated change. Fintechs face an established, safe banking system, and an unfamiliar regulatory environment.One thing is for certain, fintech is inevitable... BC
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