Article

How banks can stay ahead of fintech competitors — and do it in real time

Consumers would prefer to bank with a traditional provider. But in the absence of mobile services they'll look elsewhere, and they have no shortage of options when it comes to nontraditional alternatives.

June 23, 2016

by Mike Hamlin, Vice President of Product Strategy for Card Services, Fiserv

Today's consumer has an expectation of immediacy. Nobody tolerates a time delay if they are, for example, downloading a video or music.

If I download a song, it's because I want to listen to it immediately, not in hours or days.

Our new seamless, always-connected mobile reality has implications for financial services, too.

We now have an expectation that we don't need to agonize over financial services because we have the ability to access our money — and the information associated with it — securely, quickly, easily and reliably.

It is coming through loud and clear that "real time” will only become more critical to the consumer experience — and to the success of financial institutions.  

Research from Raddon Financial Group, a Fiserv company, shows that 55 percent of consumers would prefer to conduct all current and future financial business with a traditional bank or credit union.

In the absence of your delivery of mobile services, however, consumers will eventually seek what they're looking for elsewhere, because they have no shortage of options as nonfinancial providers increasingly intrude on the landscape.

Understand the dynamics at play

1) Fraud is a huge area of concern and card management solutions are growing in response. New mobile fraud mitigation services like tokenization and digital wallets are examples. Tokenization is gaining traction — Raddon research shows that 4 out of 10 consumers say a tokenization security measure would prompt them to use mobile payments.

Placing self-administered card controls in consumers' hands is also gaining favor. Interactive cardholder text alerts, for example, are an efficient and convenient way to combat fraud.

Early returns would suggest that putting control in your cardholders' hands means they will move your card to top-of-wallet position, spend more and transact more.

2) Transaction types are shifting as a result of the fast pace of mobile technology and its adoption by consumers. An investment in new mobile channels is imperative to keep pace with change and meet consumer expectations. 

3) Consumer preferences are driving digital payments based on the need for self-service capabilities. Millennials have a unique set of expectations, and it is necessary to segment consumers based on criteria that are most important to them. 

4) New competitors continue to emerge and fight for consumer trust and relationships. Today, consumers can form electronic payment relationships — activities traditionally performed by the financial institution — with a variety of players and brands. These competitors have significant user communities and have the potential to disintermediate the financial institution to customer relationship.

"Are we delivering market-leading innovation and providing a better customer experience than our competitors?" "Are we agile enough to shift with evolving markets and customer demand?" Financial institutions need to answer these tough questions if they are to thrive in the digital age.

Provide peace of mind and anytime access

Security and simplicity do not necessarily go hand-in-hand when it comes to mobile payments. A careful balance has to be struck in order to provide the best possible experience to consumers, and to allow them to control when, where and how their cards are used.

There are downloadable apps that security-minded consumers can use to turn their cards on and off, ensuring that they are not used fraudulently. Equally important is education about mobile payments security to ensure that consumers understand their FI protects their personal and financial  information and how this benefits the customer.

Putting the consumer in control has clear benefits: Your customer is now on the frontline, joining you in a united front against fraudsters; two-way communication with the cardholder fosters a relationship built on safety and convenience.

When fraud occurs and cards need to be reissued, a percentage of customers never activate the new card. Putting security tools in the cardholders' hands not only generates revenue as consumers feel safer and more inclined to choose your card for payments or purchases, but also instills a greater sense of trust in you as a financial institution.

If consumers are conducting more transactions using your card, moving your card to top-of-wallet and front-of-phone, and spending and transacting more, you have the potential to start connecting dots over time, deepening relationships and serving customers with additional products.

For instance, Raddon research found that for one-half of the consumer population, tokenization of in-store payment cards would prompt greater debit and credit transaction activity.

Focus on engagement

Engagement is of paramount importance. A differentiated, personal experience is how financial institutions set themselves apart from the competition.

A recent Gallup study found that consumers who are fully engaged (i.e., those with a strong attachment to a particular brand) delivered a 23 percent premium over the average customer in terms of share of wallet, profitability, revenue and relationship growth.

Additionally, consumers who are fully engaged bring 37 percent more annual revenue to their primary bank than consumers who are disengaged.

Traditional financial institutions have something in their favor over the new players who are beginning to crowd the payments space and compete for mind share: You know your cardholders. Using analytics and data are important to gaining a competitive edge and fostering profitable relationships.

Analytics are important in driving the effectiveness of sales and marketing efforts, and deep customer relationships are fundamental to being top-of-wallet and front-of-phone.

Simply framed, portfolio growth is all about the relationship. Know your cardholders and target behavior with actionable opportunities.

Stay ahead in a fast-moving world

People aren't thinking about financial services, they are thinking about living their busy lives. They want to be able to access their money conviently and securely in real time.

In such a fast-moving landscape crowded with new players, competing successfully comes down to the ability to understand cardholders, deliver solutions they want in the way they want them, and give them peace of mind that they can conduct transactions securely.

By taking these steps, financial institutions can protect their investment in the cardholder in this new reality.

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