With the disruptive arrival of financial technology tools and platforms, banks worldwide have been besieged with gloomy forecasts. Advisory firms and analysts are feverishly crunching the numbers and warning of a tech-fuelled banking revolution – with the established players on the backfoot. It may be true that banking is in the process of changing forever, but digital transformation has actually placed the savvier incumbents in an enviable position, one where they can leverage an asset they alone hold, say Schalk Nolte, CEO of Entersekt.
Despite the wave of negative sentiment towards the financial sector and banks in particular since 2007, consumers have continued to trust that their money is in safe hands. For decision makers within the banking sector, now is undoubtedly a critical moment to harness this trust and build on it. As it stands, banks are under threat and are fielding valid questions around their future relevance. If they make the most of the advantage they hold over new and unproven competitors – trust and loyalty – they will surely turn the fintech tide in their favour.
A custodian of the consumer’s core digital identity…
As new payment tools like Google Wallet, Apple Pay, and others emerge, consumers are increasingly attracted away from traditional banking services to app-driven, on-the-go convenience and simplicity. In the meantime, a digital crimewave has raised anxiety over the security of their personal data and accounts. Their awareness of risk has arguably opened up an opportunity for banks to respond to the big Internet companies by launching entirely new digital services under the reassuring logo of a company they know delivers superior security.
There is, for example, huge potential in banks’ expanding their role in identity provision. According to Research Now, smartphone owners use on average six to ten apps each week. Dashlane, a password managing service, says the number of online accounts we have is doubling every five years. It estimates that the average Internet user already has over 90 accounts and will have more than 200 by 2020. These would include scores of dormant and forgotten accounts (Myspace? Megaupload? That blog you posted to three times?), but the number probably doesn’t factor in the coming wave of passwords protecting devices on the Internet of Things.
In many cases, robust security controls are not in place to protect these accounts and, as a result, it becomes inevitable that sensitive consumer data ends up in the wrong hands. This opens individuals up to identity theft and cyber fraud – a scenario that we have already seen played out, at severe cost to both consumers and companies around the world.
Banking institutions, the sole entity that consumers already trust with their money, can play a pivotal role in addressing this challenge by becoming the central custodian of every consumer’s core digital identity. Forward-thinking banks can ultimately interface with third-party systems across the digital world, and act as trusted enablers of frictionless transacting and communication.
For example, consumers could click a Pay Now button on an eCommerce site or log in to an email account – and the authentication process used to verify their identity would be managed by their bank, behind the scenes. Individual account providers do not then need consumers to provide them with the same amount of personal data.
While some banks view this custodian role as overly futuristic and ambitious, others don’t. Banks already have sophisticated digital security in place, which extends to mobile. In addition, their customer onboarding procedures are unsurpassed in the private sector, dictated by governments’ ever more stringent know-your-customer regulations and FICA requirements. They possess a wealth of data on their customers, which can also be used to personalise third-party services and better target product offerings across the Internet.
Looking ahead, assets like these are becoming priceless as consumer concerns over data privacy and security mount. By providing a consolidated entry point into the digital economy through something like a money-backed digital passport, banks can help eliminate the risk and inconvenience consumers bear by sharing their personal and financial details with scores of unvetted individual service providers.
More touchpoints, greater loyalty
Another key benefit of becoming a ‘digital custodian’ is that it will increase the number of daily interactions and draw banks deeper into consumers’ everyday lives. If this daily interaction is both seamless and secure, banks will strengthen their relationships with their customers, improve retention and boost brand equity.
As noted above, they will have the option of inviting trusted service providers in other industries onboard. Telecommunications, health and insurance firms face their own digital disruptions and are looking at ways to engage their customers in new ways. Making use of data on the banking side, insurance firms, for example, could access banking customers searching for a very specific kind of policy.
These types of engagements will only be implemented once consumer consent has been given, with the relevant opt out clauses provided at the right stages. In this way, trusted partners could piggyback on existing digital infrastructure – including banks’ security and authentication systems – while the banks strengthen their relationships with customers.
Trust and the loyalty it inspires cannot be taken for granted in a fast-paced era of change. To secure their relationships with their customers far into the future, banks must broaden their relevance now, and fintech provides them with the perfect toolkit to do just that.