I recall the early days when remote banking and bill payment entered the market. It was a common marketing strategy that bank Customer Service Representatives handed out free floppy disks to the public on street corners in high traffic areas, with the intention bank customers will use the disks to enroll in bank bill pay services. Armed with a floppy disk, a modem and a computer, consumers could connect with their bank and initiate paying bills on-line. This was a time early on when technology created disruption. The way consumers pay bills changed and over time banks offered the product for free, creating consumer “stickiness” and increased retention.
Technology continues to have an impact on the way financial institutions interact with their customers. Banks continue to partner with FinTech in order to deliver products and services to meet a consumer demand in less time than developing the product in house. In addition, the skills-sets of many FinTech start-ups could comprise a gap, when compared to the bank resources. As a result, a number of banks from Citigroup, Bank of America, Silicon Valley Bank, Wintrust, BYNMellon, have taken a collaborative approach to partner with FinTech to deliver solutions to the market at on a timely basis. Banks have embraced new technology and solutions to provide new revenue streams and higher based margin products.
However, FinTech is a two edged sword. Although banks have added new sources of revenues built on FinTech solutions, advances in technology are causing some bank product revenues to erode. One area where this is obvious is with small business lending. Business loans, for many banks, continue to comprise the “bread and butter” revenue stream. As this segment continues to grow, cash flow remains a challenge. Small business lending, at some banks, almost disappeared.
Many think, loans less than $100,000 should be easy to lend. However the likelihood for higher amounts is more common. In addition, a small business owner wants the cash now! Whether to meet payroll or the need for expansion, the small business owner cannot wait months for approval. So what does this all mean?
There are on-line lending companies that are growing faster than the dandelions on my front lawn. We are hearing names such as On Deck Capital, Lending Club, Kabbage etc. Last week, the Goldman Sachs Group became the latest company to add their name in the on-line lending ring. The firm hired a former executive from Discover Financial Services to manage a new project that will leverage technology to lend over the Internet to consumers and small businesses.
So consumers that once applied to their banks for loans are migrating to other areas for lending. The on-line lending organizations continue to grow. For example, Lending Club mostly offers unsecured personal loans to consumers and in the first quarter lending nearly doubled when compared to the same period a year ago. The advertisements for both Lending Club and OnDeck can be seen through social media sites as well as off-line. The marketing objective is to create as much noise as possible to build consumer awareness and ultimately repeat customers.
The on-line lending sector is a prime example, where FinTech is wielding a two edge sword. One side works to increase revenues through the development of new products to cause consumers to transact more, the other side is causing disruption drawing consumers away from the bank.
With time, more changes will be apparent. Last week, I went to a bank branch in order to use the ATM. I noticed that all the tellers were no longer at the branch but replaced by a kiosk terminal. There was one customer services representative available for questions. I have seen my share of bank commercials and thought I would hear a voice over speaker inform me that I have reached 2020, but this is the reality today.
More advancements in FinTech and banking will be seen over the next few years in ways we cannot fully embrace or understand today. This is the new “normal”.
The Walker Group, is the bridge between FinTech and financial institutions continues to work with FinTech companies to find and create opportunities at banks and financial service organizations. Our varied market segments enables us to identify synergies and opportunities to stimulate growth as we partner with our clients to build their business. We have identified opportunities for some of our clients from large global banks those within the mid-tier that are seeking new ways to outsource technology solutions. For more information please contact me at email@example.com.