The Payments Journal Podcast recently spoke to Tom Kleinsorge, Vice President of Global Software Sales at Euronet Worldwide, and Brian Riley, Director of Credit/Co-Head of Payments at Javelin Strategy & Research, about "the delicate balance traditional banks must strike to attract the new generation of banking consumers while keeping longtime loyal customers happy."
Neobanks have been disrupting the traditional banking system for some time. Without the time and costs allocated to staffing and maintaining physical branch offices, these new online banks are freed up to be agile and pour their efforts into delivering top-notch customer service, using the latest in innovation to enhance the overall consumer experience.
So, what are traditional banks doing wrong as Neobanks emerge?
“Banks are challenged with understanding who their customers are and how they can serve this wide variety of customers that they have to deal with,” Kleinsorge said. “Traditional financial institutions are in business to make money, and they need to provide the services that their customers are going to use.”
He added: “What FIs around the world are grappling with: How do they provide this, maintain the stability, and offer the services their clients need? The next challenge is: How do they expand for the next generation of customers coming in? They’re challenged with this in a lot of different ways. They need to be able to adapt quickly.”
Brian Riley suggests paying attention to customers' lifecycles to grasp their needs, and then grow with them:
“People go through cycles,” Riley said. “You have different needs as you go through financing. That’s why it’s important to capture this segment because it’s like your first date. You always remember it. And you remember that first relationship you have with a bank. And people go through this lifecycle, they start coming out with college loans, which was not something that was prevalent a few decades ago to the extent that it is now.”
The cycle continues after that, Riley said.
“They start getting their first job, finding a partner or a spouse or whatever that means. And then moving into a spending mode,” he said. “Then they start maturing and it’s time to shift from spending to saving and investing. They’re going to ultimately get into financial service products, like shelter products, mortgages, and so forth.
“So it’s so important to address this universe of people that are aging through the process.”
Traditional Banks: Stability is Strength
Also, the stability -- perceived and actual -- of traditional banks has real appeal:
“New innovation brings its own challenges with compliance, regulation, and security,” Kleinsorge said. “The traditional FI has always been the bank. It was a trusting place to do financial transactions of financial activity.
“New entrants and new emerging technologies are coming out with PSPs (payment service providers), wallets, and alternative channels and new providers. The fintechs are coming out with all kinds of really cool technologies that challenge the banks and the traditional way they do the business. They (banks) are trying to find the balance of how they can support the new emerging customer requirements and needs that are coming out so fast, as well as providing the stability and the legacy capabilities that they’re known for and the world depends on.”
Indeed, Mr. Kleinsorge re-emphasizes that one cannot underestimate the power of stability as a selling point for traditional banks:
“I think you still have the stability of what the financial institutions do and the regulation, the insurance and the FDIC in the U.S. and just the stability of the economy,” he said. “The economy relies on the banking and the financial services industry to maintain that level of requirements compliance (and) structure that that’s out there.”
Staying Relevant with New Technology
So, with rapid changes, tech innovation, and shiny new entrants bringing disruptive new solutions to the industry, the question is: What can traditional FIs do to stay relevant and competitive?
Kleinsorge said it’s about knowing customers and their needs and delivering those things fast. It’s also about making an abrupt change from current legacy systems, especially if those systems are in-house.
“It’s important that FI’s and the banks know that they can move forward with new technologies without destroying what they’ve already done, because a rip-and-replace technology is terrifying, it’s scary, it’s expensive, it’s risky,” he said. “So being able to move forward with some of the newer capabilities and work with companies that can provide those new services (is the answer).”
Financial institutions can also rely on their core processing partners and other tech vendors to assist them with modernizing their platforms, rather than going it alone.
Replacing legacy systems with new technologies powered by artificial intelligence and machine learning may seem a daunting task at first, but the right partners have experience in completing these types of migrations and can ease the burden for financial institutions. We've seen hundreds -- even thousands -- of instances where financial institutions are hesitant to move off legacy platforms and technologies like OCR for check processing. However, the experience and expertise of our client services team has enabled financial institutions to upgrade to our OrboAnywhere suite seamlessly.