Most financial experts agree the financial sector must reinvent itself to satisfy the changing needs of the next generation of banking and insurance customers. Many of these customer-centric transformations and the implementation of new technologies can be achieved through acquisitions or in collaborations with more agile and disruptive FinTech startups.

The finance industry is under pressure from globalisation, demographic changes and digitalisation. On the one hand, these changes provide opportunities for growth but they also require steady innovation. Young, digitally savvy customers tend to be less loyal to companies or brands than previous generations. This is particularly evident in the financial sector where this new generation sees financial products and services as interchangeable. These younger customers value convenience and prefer executing transactions remotely, ideally with no direct contact with the service provider. “Advances in security and verification will enable all aspects of sales, service and delivery to be conducted online. Technology is making it easier for customers to switch banks, making relationships much less sticky”, a PwC study states. This means that a bank’s target market is no longer “defined by its physical footprint, but by its technology, regulatory boundaries and marketing budget”.

According to PwC experts, customer expectations are being reshaped by interactions outside of the banking industry. These new customers want the same type of quality and service they receive from other sectors that already place significant focus on the customer experience. Those industries offer customers multichannel access, product simplicity, seamless integration and accurate targeting such as online shops, travel search engines and music streaming services. “Customers want convenience, personalisation, accessibility and ease of use. They want to feel like their bank is anticipating their needs, not bombarding them with product offerings. They want transparency and no surprises in terms of fees”, according to the study authors.

Only companies that focus on the customer experience will survive

Market observers agree that most banks and insurers have recognised the need to deepen their relationship with their customers. “Financial institutions must figure out how they can reinvent their products and services to address consumer needs quickly. It has become easier than ever before to switch providers and only companies that focus on customer experience will survive in the long run”, says Thomas Landis, Head of F10 FinTech Incubator & Accelerator.

Financial technology (FinTech) offers the global finance industry new possibilities to adapt to changing customer needs, reduce costs and make products available to a larger share of the world’s population. An innovative use of FinTech enables financial institutions to design and deliver products and services in customer-centric and efficient ways. Artificial intelligence and big data facilitate more precise targeting as well as personalisation of products and services, while process automatisation allows for real-time transactions and instant value transfers. FinTech is effective in a broad range of business segments such as payments, lending, investment management, money transfer, fund-raising and robot advisory.

How FinTech changes the financial world

FinTech can facilitate invoicing and payment processes for businesses of every size around the world and make them faster and more cost-efficient; it can help established financial institutions deepen customer relationships with targeted communications and offerings.  FinTech can facilitate a global reach to banking and insurance customers worldwide by providing remote access to financial services through mobile phones. And most importantly,  FinTech can improve the protection of customer data by using biometric data, tokenization and encryption.

“Many have predicted the fall of the traditional bank, as disruptive new entrants win shares by offering a better customer experience through new products and channels. Yet, despite the emergence of new competitors and models, we believe the traditional bank has a bright future – the fundamental concept of a trusted institution acting as a store of value, a source of finance and as a facilitator of transactions is not about to change”, the authors of the aforementioned PwC study conclude.

Investment record for ICT and FinTech startups in 2018

The transformation towards more innovation may happen through partnerships with startups and through acquisitions. “We are convinced that innovative startups and the big players need to join forces to tear down innovation hurdles”, says Landis from F10. In Switzerland, investors are showing increasing interest in startups working in technology: Swiss ICT and FinTech startups collected 685 million francs of investment in 2018, a 120 percent increase from the previous year. This was the first time that emerging tech companies received bigger investments than their counterparts in the Life Sciences. A good example of a successful collaboration between a FinTech startup and a traditional financial institution that led to an improved customer experience and increased efficiency, is F10 alumni SONECT, a Switzerland-based B2B2C startup.

The SONECT success story in innovative banking

In this case, the business customers are retail banks and the end users are the banks’ business customers as well as individual private users. “Convenience is the number one reason to use SONECT”, explains Sandipan Chakraborty who came up with the idea of virtual ATMs when he needed cash to pay for a babysitter. On a snowy Friday night, he was hurrying to the next ATM – which was about 600 meters from his home – and watched his neighbourhood pizzeria filling up its cash register to the brink. “Parents are often busy and forget to keep cash in their wallets but depend on it as they have to pay for babysitters, pocket money and stuff at their kids’ schools – all of which is paid in cash in Switzerland”, Sandipan observed. With SONECT, end users can withdraw cash while dining out at a restaurant or when having a pizza delivered. Shop owners, restaurants and delivery services can potentially benefit and gain new clients by providing a better customer experience and reducing their cash surplus. Since operational costs of ATMs can also be reduced, banks could also benefit from SONECT’s decentralized cash distribution model. In January 2018, the F10 alumni SONECT announced a partnership with the Aargau-based bank Hypothekarbank Lenzburg. The partnership makes all customers of Hypothekarbank Lenzburg SONECT users, which crowned this FinTech startup as the single largest cash withdrawal network in Switzerland in just 18 months. Furthermore, it won the global Innovation Jam by Temenos in Dublin in May 2018 for their business idea and ranked among the Top 5 Growing Startups for the Swiss Startup Award this year.

SONECT participated in F10 FinTech Incubator & Accelerator P2 “Prototype to Product” programme. This Startup Acceleration Programme is tailored to international teams with first prototypes in FinTech, RegTech and InsurTech. F10 guides and supports startups on their journey to become successful companies. Applications for the next batch of the P2 “Prototype to Product” programme starting in October 2019 will be accepted until 2 June 2019.  

Article by Thomas Landis, Head of F10 FinTech Incubator & Accelerator.