The successful digital bank offers more than banking cloaked
in an online wrapper.
Treasury Prime Vice President of Banking Jeff Nowicki,
Emprise Bank Senior VP of Innovation and Development Emily Reisig and Zeta CEO
Aditi Shekar told PYMNTS that the branchless approach has the potential to open
up new opportunities to both traditional banks and FinTechs.
But to get there, providers need to understand the changing
needs and desires of their targeted, tech-savvy — and younger — customers.
PYMNTS’ own studies show that a majority of consumers love
digital banking features and are happy using digital banks and FinTechs. But
fewer than 10% use them as their primary account.
Shekar noted that — with a nod to the millennials out there
that opt to interact with their financial services providers online — “our
generation has evolved as a digitally native generation.” And as those
consumers get older, the expectations of every aspect of lives, banking
included, are that the experiences will be “upgraded” to be increasingly
available online.
As so much of life is shifted online, Shekar said,
“community is not going to be about where you live — it’s going to be about who
you like to talk to and who you like to spend your time with online.”
The pressure is on, then, for the banks to upgrade their
digital offerings, too, enabling a seamless flow of money movement. To do so,
financial institutions (FI) and FinTechs both need to understand the very real
shifts happening in the households they seek to serve more adroitly.
We’re no longer in what Shekar termed “single payer mode,”
where one person earns the money and spends it. The millennial generation, she
remarked, is typically marked by dual income households, and younger consumers
neither earn nor manage spend — or even share it — the same way as their
parents.
Emprise Bank’s Reisig remarked that “there’s the pressures
of technology and of innovation — the technology experiences become the new
expectation of our customers.”
Linking Banks and FinTechs
In the past, said panelists, banks may have eyed FinTechs
with suspicion, and consumer FinTechs may have sought to build everything in
house, or eyed banking charters as a key way to create the digital bank of the
future.
But Reisig said there’s room for a partnership model where
FinTechs can innovate, create delightful experiences and solve frictions
inherent in the digital channels emerging in financial services. Banks like
Emprise, she said, can be a supportive banking partner, bringing their
knowledge and expertise to bear on all manner of critical banking products.
The banks and FinTechs need a bit of connective tissue to
tie their respective strengths together, Nowicki said, who added that providers
including Treasury Prime can help connect the two sides of that digital banking
equation. The banks, he said, bring their strengths in risk management and
regulatory compliance to the table, as purely digital relationships continue to
be forged between consumers and banking entities.
“It’s important for the banks that are entering into [the
digital banking] space,” he said, “to keep control of certain aspects of the
programs and of the relationships.” For the FinTechs, said Shekar, there’s the
advantage of not having to build deep integrations with each and every bank
partner.
As she noted, “I am not a compliance expert — I’m a software
builder, and I like the ability to stay in my lane while still leveraging the
capabilities of a bank partner and Treasury Prime at the same time.”
Long-Term Evolution
The partnerships, the panelists told PYMNTS, are critical,
because there is still a way to go in the evolution of the digital bank.
Nowicki predicted that in the years ahead, we’ll see more specialization as
providers add more services. All manner of providers, Reisig said, have the
opportunity to build up specific customer bases and maintain wallet share.
And as the digital bank continues to evolve there will be
the opportunity to become consumers’ primary banks.
“The uptick for making the digital bank the primary bank is
in solving some edge cases,” for innovating interactions that have typically
involved cashier’s checks and even access to cash. Shekar observed that FinTech
1.0 had traditionally been unable to solve for “last mile” delivery of
financial services. But now with the development of infrastructure and
partnerships, there’s the ability to, for example, pay for large-ticket items
like cars through the use of apps (eschewing the cashier’s check).
Against that backdrop, Nowicki said, embedded finance
represents an enormous opportunity for consumers and businesses who want to
bank where they are — and for the FIs and FinTechs that seek to serve them.
Embedded finance, Reisig said, represents far more than just a neobank
sponsorship opportunity. Banks and FinTechs, Nowicki offered, will look to
consumers through nontraditional products (such as small business microloans),
as application programming interfaces make data access easier.
“It’s embedded banking in multiple places and digital
experiences and throughout the customers’ daily lives,” she said, to which
Nowicki observed about the rise of the digital bank: “It’s not necessarily
reinventing the wheel, it’s reinventing the user experience.”
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