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Who will be the Winners: FinTechs or Banks?

Sweden is one of the most technologically advanced countries in the world- boasting prominent unicorns and will likely be one of the first to go cashless. The nation also has 4 large banks which have held around 70% of the market consistently. However, these banks are nervous and have been investing in numerous FinTechs- so PA asked: which do customers prefer?

PA found customers priorities with their banks are:

1. Fees: consumers want to pay the lowest fees and are willing to choose their bank on this

2. Insight: customers want to be educated and not just informed

3. Show Everything I Need in One Place: e.g. an app & 76% of respondents have multiple banks

4. Make it Easy: customers use to ease (e.g. Amazon or Uber) and often unaware of regulations

5. Do it My Way: a need for every customer, such as a local bank or fully digital

6. Grow our Relationship: 62% have been with their bank 10+ years and want proactivity

FinTechs

PA found customers prefer FinTechs when they have the backing of a bank and 68% of respondents would use a digital-only financial services provider.

It may not be about asking people what they want; after all, Steve Jobs would say “our job is to figure out what they’re going to want before they do” rather than ask.

There are 4 different levels of services by financial services firms (as shown above) and FinTechs are trying to compete with these in order to acquire their customers. Evidence of a ‘Value Driver’ can be shown by the launch of ‘Marcus’ by Goldman Sachs which offered high interest rates on deposits and had drawn in $60bn in deposits by January (2020) despite not featuring all the expected ‘Hygiene’ factors.

Klarna is an example of a ‘Delighter’ as it simplified the payment point and saved customers time.

Partnerships

Partnerships are hard, firms worry about cannibalising their own margins, and come in 3 forms:

1. Clear Superiority: e.g. best tech & low costs- like TransferWise (a favourite of neobanks)

2. Outside Core Competence: e.g. partnering to integrate accounting packages (like Tink)

3. Leverage Balance Sheet: big banks leverage their assets (Marcus used for Apple credit card)

Incumbent Banks

The incumbent banks hold 5 advantages over Fintechs:

Balance Sheet | Large Consumer Base | Profitable | Trusted Position/Stability | Risk/Reg. Compliant

Ron Shevlin: “Consumers don’t want a digital bank- they want a better bank”