Big Tech Is Coming for Traditional Banks: Here Are 3 Ways Banks Can Defend Themselves
By Jon Lunitz, Managing Director of Financial Services, ibex
According to a recent report from GP Bullhound, big tech poses an “ominous threat” to legacy banks, due to big tech’s ability to combine a best-in-class digital banking experience with instant and massive scale. Already, the threat is taking shape, with companies like Apple and Google poised to snatch away an estimated 74% of consumer payments—and a staggering $250 billion in payments revenue—from traditional banks by 2030, according to IDC.
But traditional banks can fight back. To do it, they must adapt to the changing “ex-pay-tations” of consumers. They must look at the popular financial services that big tech now provides, learn from them, then provide similar services of their own.
Here are three ways traditional banks can update their offerings and keep their customers from transferring to big tech.
1: Understand the customer journey
Applying for and receiving a credit card has traditionally been an experience fraught with friction. When dealing with a traditional bank, consumers still have to contend with an extremely cumbersome application process, which includes outdated validation and approval hurdles and waiting times of weeks or months before they get their card in the mail.
Now compare that experience to applying for a credit card from a service like Apple Pay. You can sign up, get approved and have your card in your digital wallet within minutes. The two customer experiences as different as a Ford Pinto and a Tesla Model X.
Traditional banks must learn to meet their customers where they are, i.e., not in their retail branches, which are now shutting down by the thousands. Today’s consumers live and transact in the digital world, on their PCs and smartphones, and that’s where banks must be.
More than ever, established banks need to streamline and digitize the customer experience, whether that means converting physical plastic cards into digital cards or replacing traditional bank accounts with mobile wallets.
2: Make the most of customer data
Big tech companies are extremely skilled at utilizing data to their advantage—and the advantage of their customers. Look no further than the recommendation engines of Amazon and Netflix, and their ability to serve up the content and products that people are most interested in. Big tech has truly mastered the art of anticipating the needs and wants of its customers and delivering hyper-personalized offerings that resonate deeply.
Traditional financial institutions are not anticipating the needs of their customers to nearly the same extent. In fact, in many cases, they are still communicating with customers via generic messaging that doesn’t connect with customers but alienates them.
Financial institutions need to do a much better job of using customer data to their advantage to compete going forward. Once they do, they too can better understand their customers and offer the personalized products and services that customers need—at the exact time they need them. They can also upsell and cross-sell customers on traditional banking products, whether it be a new mortgage, renters insurance, or a personal loan. The point is that by better leveraging data, traditional financial institutions can once again be top of mind among consumers.
3: Leverage banking’s tradition of security
Customers are increasingly reluctant to do business with organizations that don’t adequately secure their data and protect them against cyberattacks. This is actually an area where traditional banking institutions are doing a good job vis-a-vis their tech competitors.
Bank customers know that whatever funds they deposit in their bank are secure, and banks are in a great position to take advantage of this trust factor. Banks are largely applauded for the secure infrastructure and regulatory compliance they have implemented and honed over the years. Going forward, they can build on that reputation by delivering a bulletproof customer experience that distinguishes them from some of their big tech competitors, which themselves regularly struggle with widely publicized security issues and cyber incidents.
Final takeaway
A year ago, in his annual shareholder letter, JPMorgan Chase CEO Jamie Dimon called big tech an “enormous competitive threat” to banks. “Banks are facing extensive competition from Silicon Valley, both in the form of fintechs and big tech companies,” like Apple, Google and Amazon. “That is here to stay,” he said. If traditional banks want to be here to stay, they must respond to the faster and more customer-centric approach to doing business in the digital age. By taking a page from the big tech playbook, financial institutions can deliver highly secure and highly personalized digital services that enable them to grab greater wallet share and truly meet the “ex-pay-tations” of consumers.