Personal Finance. Money. Investing.

As a result, they can provide products and services that are faster, easier, and/or cheaper than that which traditional banks can deliver, but what are the key elements FinTechs should consider in this offering?

Here Scott Woepke, Head of Financial Services Strategy at Acxiom, outlines four pillars of fintech-customer relationships that will help fintech providers grow their market share.

Fintech companies are disrupting the financial services industry because they’re not tied to legacy operations, traditional organisational rules and established structures. They’re thinking differently, experimenting, and exploiting data to develop products and services that are easier to use, convenient, and sometimes cheaper than those of traditional banks.

Like all businesses though, fintech companies must build and nurture relationships with their customers.

  1. Usefulness

Customers don’t like to switch banks – only 3% of personal and 4% of business customers switch to a different provider in any year. They’re often risk averse and it’s difficult to convince them of the benefit. Historically, the common method employed to encourage people to switch banks is to offer a more competitive interest rate. However, for many customers, a competing offer of marginally more money or savings is unlikely to win them over. There is a zone of indifference where small price changes have little impact on perceived value.

So, it’s a tough sell and customers certainly won’t sign up to a new current account or move to an incumbent financial services provider simply because it’s digital. Having a shiny new website or phone app isn’t enough.

It’s important that fintech companies understand the problem they’re helping to solve, and that the solution fits into customers’ daily lives. Fintech products must make it easier for people to manage their finances and people will build relationships with businesses that improve their efficiency. Customers are attracted to fintech companies that help them manage their money better by, for example, helping them understand their income and expenditure or using AI to make real time recommendations. For the fintech-customer relationship to succeed, the usefulness of the product must be compelling.

  1. Ease of use

All things being equal, customers are unlikely to switch to a new provider offering a similar banking experience. A YouGov’s study indicates that one in five (21%) Brits have considered switching current account but ultimately have not gone through with it. This was despite compelling cash incentives and the Competition and Markets Authority (CMA) promoting a seven-day switching service.

So, to encourage customers to leave behind the traditional products and services they’re used to, fintech companies must create alternatives that are easier to use and access. The user experience and customer journey must be better than those provided by traditional financial institutions.

To motivate a switch, fintech companies must deliver a compelling and differentiated value proposition that may provide better pricing, but delivers accessibility, ease-of-use, convenience, and loyalty programs. Some fintech companies have also been successful with customer acquisition by offering new tools that introduce discipline and management of savings that help customers reach their financial goals – like saving for a holiday or to buy a car or home. A well-designed and compelling financial fitness programme will not only attract new customers, but it will help build much deeper relationships.

To motivate a switch, fintech companies must deliver a compelling and differentiated value proposition that may provide better pricing, but delivers accessibility, ease-of-use, convenience, and loyalty programs.

  1. Brand image

Only 55% of Britons trust banks, and only 36% think they work in their customers’ interest, so brand and reputation play important roles are intangible assets with economic value. A strong brand image will generate trust and establish perceptions of quality, value and satisfaction. Fintech companies must invest in increasing their brand awareness as customers are unlikely to open an account at a bank they’ve never heard of.

From a marketing perspective, it’s important to understand the importance of timing, offers, and channels for communication. In terms of timing, there are windows when customers are more likely to switch, for example, when they’re unhappy with their current provider. Lifestyle changes such as starting a family, moving home or getting divorced can also provide motivation for a change. The offer (or proposition) is very influential in the customer’s decision to switch providers. Finally, the channel of communication is critical and it’s important to remember mobile is the preferred channel for banking and content consumption.

  1. Trust

Handling money and customer data are the bread and butter of fintech businesses, so earning customers’ trust is essential. Any perception of risk will negatively affect the adoption of new technology. The importance of trust can vary by product (i.e. borrowing vs. investing) based on customers’ sensitivity about the service.

To build trust, fintech providers must ensure they operate within the laws and regulations of the countries where they are based. New technology is breaking down geographical boundaries, but it’s vital for the fintech-customer relationship that customers understand their legal protections and can trust that their assets are safe.

In the UK, the government has played a role in the definition of the technology and has provided financial backing of the infrastructure, making fintech services more acceptable to potential customers. Since January 2018, PSD2 and Open Banking have forced the UK’s nine biggest banks to release their data in a secure, standardised form, so that it can be shared more easily between authorised organisations online.

While fintech companies represent a threat to the incumbent financial services providers, they still have a lot of work ahead to overcome the customer inertia that exists with their providers. Understanding customer perceptions and needs will be an important factor to success and help develop a long term, sustainable fintech-customer relationship.

Yet, this is something many businesses, SMEs in particular, currently struggle with. Below David Duan, Data Science Stream Lead & Principal Data Scientist at Fraedom, explains why AI is key to the relationship between banks and business.

Research from Fraedom found that almost a third of UK SMEs claim to have a clear picture of business spend at the end of each month but little visibility on a day-to-day basis. As banks begin to remedy these issues, we are seeing the introduction of more technologies that make use of artificial intelligence (AI) and machine learning (ML). Consequently, businesses could soon benefit from a wider range of capabilities, tools and controls with AI having a major impact on the following areas:

Control over spend

Through the use of AI, banks will be able to more accurately forecast how much credit businesses require and limits on spending will be set automatically, enabling banks to gain a better understanding of their spending. This can also be implemented within the organisation as AI will allow for credit limit redistribution based on what different employees regularly spend. This means that credit will be allocated in an optimal way, ensuring the amount of credit employees are given reflects their spend history. This ensures that those employees who often make large transactions are given the credit to do so, while those who use their company accounts for lower-cost transactions don’t receive as much, so as to ensure credit is being used to the greatest effect.

Account protections

As banks make better use of AI for fraud detection, businesses will benefit from improved security features. In these scenarios, AI will help businesses keep their accounts safe by detecting any anomalies in their accounts and fraudulent activities much quicker than previously possible. This works by the model having an understanding of what is ‘normal’ for each account or card and recognising patterns based on past transactions and behaviours. For example, if 99% of the transactions for one account happen Monday to Friday, a transaction that occurs at the weekend will be seen as abnormal and flagged as such. Of course, anomalous transactions aren’t always fraud. Often they’re just out of the ordinary, requiring some more investigation – flagging them to the business would certainly allow for this. With companies currently losing an average of 7% of their annual expenditure to fraud, these technologies will help lower incidences of fraud as shown by Visa’s use of AI reducing global fraud rates to less than 0.1%. In the future, AI could be used to detect fraud in real-time, stopping fraudulent transactions from being processed altogether.


Expense management

In addition to providing banks with a greater degree of control and understanding of their finances, banks are also beginning to use AI to offer businesses extra tools and services. A prime example of this is expense management systems which use AI to simplify the expense process and reduce the amount of time employees and finance departments spend on such tasks. As with fraud detection, the system would establish patterns based on the employees historic spending behaviour. For example, it may pick up that once a week the sum of £5 is spent in a coffee shop which the user then applies a particular expense code to. Once this behaviour has been demonstrated enough times, it becomes a pattern. So, the user will no longer have to code the transaction themselves, the system would automatically identify the type of expense it is and code it correctly.

As the system establishes more patterns and understands what the user or business is doing, smart coding could start to be applied to a greater number of transactions. This would significantly reduce the amount of time spent manually sorting through and coding expenses as the employee then only has to check that the correct codes have been applied.

Ultimately, the use of AI and ML will help banks build up a more accurate picture of their business customers and result in the ability to automate more processes. In turn, this will provide organisations with a greater level of control over their accounts, improved visibility and a better understanding of their finances. As this is realised, businesses will begin to reap the rewards of their employees spending less time manually interrogating accounts and instead being able to focus on more value-adding tasks.

Below Gemma Platt, Managing Executive for Vigilant Software, discusses with Finance Monthly how we can restore consumer trust in the age of disruptive banking using better compliance measures.

Atom Bank launched publicly in April 2016 and secured total funding of more than £200 million by the following year, specialising in savings accounts and mortgages. In April 2017, online bank Monzo had its UK banking licence restriction lifted, allowing it to offer current accounts for the first time. Tandem, Starling Bank, Loot and Revolut are more digitally led financial services brands that didn’t exist a handful of years ago.

Changing consumer behaviour

Meanwhile, research by Accenture has shown that customers’ physical interactions with traditional banks are decreasing; from 2015 to 2018, the number of consumers who visit branches at least once a month dropped from 52% to 32%. Over the same period, the number of consumers who use ATMs at least once a month dropped from 82% to 62% – a decline of nearly a quarter.

In many ways, these shifts are unsurprising. We live in an increasingly connected world. As mobile devices become more powerful, and the networks connecting them faster, banks can offer better functionality to customers anytime, anywhere. If the goal is to put customers first, to tailor services to suit them and to work with their daily patterns, digital technology is a great enabler.

However, just as the digital era is disrupting the ways in which consumers engage with their banks, it is also disrupting the trust those consumers have in their banks.

Wavering trust levels

Trust, as all financial organisations know, is the foundation of their relationship with customers. When trust fails, so do banks.

According to Accenture, consumer trust in banks has been rising steadily, and is now at its highest point since 2012. It seems likely that, following the 2008 global financial crisis and subsequent recession, consumer relationships with their banks have stabilised.

However, at the same time, consumer concerns about cyber security and online fraud are on the increase. PwC research in 2017 suggested that a massive 85% of consumers would not do business with a company if they had concerns about its security practices, and 71% said that they found companies’ privacy rules difficult to understand. This was before the introduction of the GDPR (General Data Protection Regulation), which has shifted the issue of personal data protection into mainstream consciousness.

Similarly, the Ping Identity 2018 Consumer Survey: Attitudes and Behaviour in a Post-Breach Era, which surveyed more than 3,000 consumers in the UK, US, France and Germany, found that one in five of them had fallen victim to a corporate data breach, and just over a third of those had suffered financial loss as a result. Unsurprisingly, the survey also found that 49% of consumers would not engage a service or application that had suffered a recent breach.

Where banks are digitally led, two areas of trust collide. Customers might have more faith that their banks are reliable, well run and unlikely to collapse, but are simultaneously more fearful of the wealth of risks and threats in the online world, from the theft of their personal data to viruses and malware that can attack their personal devices.

Where banks are digitally led, two areas of trust collide. Customers might have more faith that their banks are reliable, well run and unlikely to collapse, but are simultaneously more fearful of the wealth of risks and threats in the online world, from the theft of their personal data to viruses and malware that can attack their personal devices.

Furthermore, research into the security posture of banks and other financial services organisations suggests that consumers may be right. When the Economist Intelligence Unit surveyed more than 400 C-suite executives at major banks around the world last year, it found that just under half of respondents believed that a cyberattack would cause “at least one systemic bank failure in the next two years as the digital transformation of the banking industry continues to automate the sector”.

In other words, as banks rely on digital technology more and more, whether to offer customer-friendly mobile apps; to automate manual processes to streamline management and reduce costs; or to take advantage of new innovations such as AI, Cloud computing and the Internet of Things, they expose themselves to ever greater levels of cyber risk.

‘Always on’ compliance

Digital banks – whether challenger brands that have entirely bypassed physical premises, or traditional institutions that have branched out into highly functional apps and websites – are ‘always on’. And this is precisely how they need to see their approach to cyber security and compliance.

Traditional approaches to regulatory compliance – whether with frameworks for best practice such as ISO 27001 or legal requirements such as the GDPR – tend to involve organisations undergoing a single period of reviewing, updating their tools and processes accordingly, and creating a record for audit purposes. This is repeated perhaps once a year to demonstrate that compliance is being maintained.

However, in a dynamic, digitally driven world, compliance needs to be dynamic and digitally driven too. This means undertaking compliance checks more frequently and maintaining online dashboards that offer a real-time snapshot of the current compliance posture and are automatically updated when elements of the organisation’s digital infrastructure are changed. Banks have embraced digital technology to offer their customers something new; the next step is to use digital portals, dashboards and compliance management tools to ensure a next-generation approach to building trust.

When considering where to take your company to, try to think differently to all of the other companies out there. Don’t jump for the easy route of heading straight to the US or an easy nearby market, for example from the UK to Ireland.

Home in on your options

Before you make a move, decide on your options. Does it make financial and logical sense to expand by city, country or by language?  If you’re looking to expand straight into another country over a city first, then take a private jet charter and talk to the locals. It’s imperative when expanding your business globally, to spend some time on the ground where you are wanting to set up base and speak to people who live and work there. You could look at all the data trends for your business sector in that country and analyse whether or not the market will suit your model, but nothing beats the invaluable insight of the people who reside there full time.

Prioritise the markets

There isn’t much point trying to jump into every single market that’s detailed in your statistics document. Think about what really matters to your business and what direction you’re heading in.

Is this new market as big as your home market or bigger? If the answer is no, then it’s meaningless expanding your business into this country, unless you have a strong reason. Are there similarities across markets? If you are a logistics or eCommerce business, the likelihood is that you’ll need established distribution hubs that cover most of Europe and beyond – make sure you check out factors like this before you make the move.

Can you get ahead of the local competition? When you head to your desired location and speak to the locals, get an idea of how established your competitors are. Are they start ups who you will have certain advantages over, or are they big conglomerates who may be hard to beat?

Leverage Partner and Channel Relationships

Working with your partners is a solid strategy when looking to expand globally. Maybe the distribution company you work with has its headquarters in your desired country or has a strong presence there. Keep your partners in the loop with your growth plans, you never know when you’ll need to lean on them for a greater insight and potential assistance as you drive your expansion forwards.

Trust, context, the story, the relationship; these and many more are the strategy picks of today’s challenger banks, and the weapons of choice in today’s battle for the high street consumer. Below Finance Monthly hears from Yelena Gaufman, strategy partner at Fold7, who explores the current banking landscape and the increasing dominance of social good.

There is an undeniable disruption currently occurring in the world of banking. Innovative and cost-effective fintech and 'neobank' startups such as Revolut, Monzo, Tandem, Starling and Monese, are offering a fresh spin on an old formula and winning customers across the UK and beyond as a result. These are digital-first banking brands boasting features borne from bold, utility-first strategies and, more recently, a drive towards social good, and it's predominantly these features that have won them such good press and such good custom.

There is still a catch, though. This disruption might be well-documented, but it's not a foregone conclusion. Even if they are the “banks of the future,” these challenger banks could still learn a thing or two from their brick’n’mortar forebears when it comes to building trust, and they should start by asking one simple question: What is it that makes a person commit to one brand over another? Something so powerful it can transcend convenience and commodity? Emotional connection.

These challenger brands might offer a convenient, forward-thinking service, and they certainly represent significant value, but they often struggle to communicate their value proposition to consumers, particularly outside their traditional audience of urbanite early adopters. They also might offer a compelling vision of a different kind of banking, but what they really need to develop if they want to sow the seeds of genuine, lasting displacement, is an emotional connection with consumers.

A foundation of trust

The most obvious hurdle facing our fresh-faced fintech brands is the legacy and authority established by the incumbents. Consumers are far more likely to place their trust in the hands of an institution with a proven history, especially when it comes to parting with their hard earned bucks.

Building trust takes time, of course. But fresh-faced fintech brands do have a pair of aces up their sleeves. They are still figuring out what they want to be, and, perhaps more pertinently, whom they want to be trusted by. The clay is still wet, and willing to be mold into a prism through which all future brand decisions can be made and understood. When building their brands, however, and forging an emotional bond with their consumer, they should take two things into serious consideration:-

Growth, storytelling and worth

In order for new banking and fintech brands to truly demonstrate their worth, a compelling brand story and a brand purpose is an absolute necessity. It all starts with understanding the context of what you're offering and how it plays into the lives of your intended audience. Being a feature-led, innovative company is great, but what is it that defines your work beside it being new and convenient?

Making a brand feel like it's actually worth something is no mean feat though. One way of doing this is to underline the role that your brand's innovations can fulfil in our daily lives, effectively tying the business and its services together with a wider sense of purpose. This is a method ably demonstrated by one of our recent campaigns for Gumtree.

Aptly titled “Turning Points,” the campaign visualises, in a very bold and unique way, how the app can help users to seize opportunity from change. We see a young couple moving through various stages of their life together, with Gumtree a facilitator of the natural changes that affect a lot of us at “that stage in our lives.” The app is used to swap a bike for a crib and then that crib for a bunk bed, before the crib is finally shown being sold on to another young couple, ready to begin their own adventure. It's a snappy, visually striking idea that reinforces the power of using familiar emotions to bridge a brand to its potential customers.

We currently sit at an intriguing juncture in banking for both disruptors and incumbents, with the industry forcing older brands to think about how they operate and vice versa. If the startups of today can organically forge and nourish emotional relationships with their customers and build lasting legacies of their own, the banking landscape of the near future could look very different indeed.

Management Consultancy firms are cropping up left, right and centre these days. It’s easy to find one willing to help, but how do you go about finding the right fit for your business? Below Mark Peters, Managing Director at Protiviti, talks Finance Monthly through the process of sourcing management help.

As the market environment continually shifts, businesses face an increasing need to make fundamental changes to their strategies if they want to continue to grow profitably, manage risks effectively and optimise the opportunities brought about by change. Both emerging and mature businesses need to navigate digital technological advancements; disruptive innovations threatening core business models; soaring equity markets; uncertainty brought by political disruption (e.g. Brexit); cyber breaches on a massive scale; increasing regulatory scrutiny; adjustments to corporate culture; and changing economic conditions.

These critical concerns are in abundance for boards and executives, and the expectations amongst key stakeholders for greater transparency about the nature and magnitude of risks undertaken in executing a businesses’ corporate strategy are high. Simply put, hiring more people is no longer sufficient to maintain growth; instead, today’s challenges are driving increased demand for management consulting expertise.

Management consulting can include a broad range of business advisory or implementation services. It consists of providing third-party independent expertise in areas such as business strategy; management organisation; financial management; risk and regulatory requirements; HR; and technology to solve business problems. There are many types of consulting firms in the market. Strategy firms focus on one or two of the areas outlined above, while large accounting firms offer a broad range of services, to name two examples. However, market demand for greater insight and choice has seen both the emergence of more specialist knowledge, and an increasing requirement for consulting firms to provide a ‘full service platform’ offering. At one end of the spectrum, potential clients are looking for high-value consulting services (e.g. realising opportunities of strategic change) for critical areas, while at the other end, they are also looking for more traditional commodity and lower cost consulting services (e.g. staff augmentation). Overall, the market is seeing increased demand for a cross-spectrum offering as well as a rise in independent consultants offering more niche services.

With this backdrop, to find the best consultants to support them, organisations need to develop their own criteria for selection. Factors might include the extent to which the consultant can show:

Experience tells us that no one competency or consulting firm is ever enough to solve today’s complex business problems. Most clients want to work with a consulting firm that can demonstrate the qualities described above, solve business-critical problems and offer an alternative, fresh perspective. Consulting firms that develop the expertise of their people in the areas of digital transformation, data analytics, robotics, risk, regulatory change and front-to-back office improvements, and tailor solutions to fit the unique business problems of every client, are seeing unprecedented demand from companies wanting help to face the future with confidence.

The C-Suite landscape is changing. With the introduction of several new C-level executives to manage HR (CHRO), Marketing (CMO) and Strategy (CSO), it is not easy for each of these individuals to have a prominent, influential seat at the table. Here Robert Gothan, CEO and founder of Accountagility, talks to Finance Monthly about the importance of the working rapport between C-level executives, for any business.

After the Chief Executive Officer, the secondary ‘leader’ of the business has historically been the CFO. Once responsible for departments such as HR and IT, as well as keeping the business financially stable, the CFO held an undeniably strategic role within the business.

The introduction of advanced technology has changed this however. Businesses across the globe now hold a CIO or CTO amongst their most trusted boardroom members, with influence and budget behind them. Our increasing reliance on technology has led to the rise of the CIO, who not only fulfils the ‘technical director’ role, but also acts as a key strategist, marketer and adviser to the wider organisation.

With different executives vying for boardroom prominence, offering high level strategy to benefit the growth of the business is vital. As such, the CFO and CIO must consider how they can form a partnership and add maximum value to their individual departments, and the business as a whole.

The focus on finance

The CFO’s role has now returned to its original focus – finance – but CFOs are also contending with mounting pressure to be a strategic presence within the boardroom. Today’s CFOs are not only expected to make recommendations on the future of the firm’s growth and profitability, but also to ensure the very existence of the firm itself. However, the main focus needs to remain on the finance function within a business.

For the financial services sector in particular, frustration with the IT function is not uncommon for CFOs – delays in projects, insufficient resources and constant restrictions can lead to discernible tension between the CFO and CIO. Further still, CIOs are often given budgetary freedom that has led to the rise of the ‘vanity project’ phenomenon, where senior IT directors use up capital and resource on highly technical projects which add questionable value to the business.

At the same time, IT departments often fail to meet the needs of the finance function. As a result, these employees are often left to rely on ineffective, quasi-manual tools such as Microsoft Excel. These solutions not only add to the increasing resource pressure on the finance department, but can also bring with them significant corporate risk.

That is only one side of the story, however. EY’s recent report ‘The CFO Agenda’ has highlighted a key setback in the CFO-CIO relationship – CFOs’ lack of understanding when it comes to IT issues. With clear collaboration needed between these two roles, a more productive relationship must be fostered.

Mutual understanding

In most organisations, these two boardroom heavyweights ensure that current business operations run efficiently and effectively. Alongside this, they also shape the strategy for future business growth.

EY’s report also shows an increased desire for these two roles to collaborate more often, with 61% of CFOs reporting increased collaboration over the past three years. The areas most improved in terms of collaboration were CFOs involving themselves in the IT agenda and adding value to the CIO by managing costs and profitability across the business, both of which are undeniably a positive step forward.

Despite this progress, the convergence of technology, investment strategy and risk in today’s digital business world has elevated the collaboration required between these two roles to new heights. As such, any disconnect will have a ripple effect throughout the organisation, and consequently put a spanner in a business’ technical advancement. For organisations to maintain their competitive edge, it is clear that the productive relationship needs to be kicked up a notch.

The future relationship

To date, the relationship between the CFO and CIO has historically been focused on cost, with the IT department’s budget a constant sore point. In fact, many CIOs have found themselves reporting to the CFO to keep an eye on hidden costs during the management of IT projects.

Nevertheless, technology is crucial to operational excellence and business growth in today’s business landscape. CFOs are already becoming far more aware of the strategic value that IT brings to an organisation, but need to see it as an essential tool for achieving broader efficiency goals and driving future innovation.

There are potential roadblocks ahead, however. Effective communication between these two roles is often prevented by the difference in language – another finance vs technology battle. There are also personality differences to contend with – CIOs are typically big-picture thinkers, whereas CFOs value logic and results. Being aware of these differences and barriers to communication will be a crucial part of creating a business partnership between these executives.

To achieve this goal, CFOs should consider employing a ‘Business Partnering’ approach in order to provide more technical, commercial business insights. To provide a higher level of strategic thinking, the CFO must utilise data which has been extensively analysed. The analysis itself will sit under the CIO’s remit, and demonstrates just one small area where these two roles can overlap and work together in modern businesses.

Ultimately, the relationship between the CIO and CFO can directly affect a company’s success, so both must come together to provide the strategic ideas which will propel the business forward. With some bold technology decisions coming up in the future, these two roles must work together to not only increase the CFO’s involvement in the IT agenda, but also to push data-driven decision making into the heart of an organisation’s future business strategy.

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Finance Monthly is a comprehensive website tailored for individuals seeking insights into the world of consumer finance and money management. It offers news, commentary, and in-depth analysis on topics crucial to personal financial management and decision-making. Whether you're interested in budgeting, investing, or understanding market trends, Finance Monthly provides valuable information to help you navigate the financial aspects of everyday life.
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