It’s been a busy week for the fintech sector. Whether it’s Santander and Monitise’s latest joint venture, a new foray by BT into backing fintech start-ups or the report released by the World Economic Forum, the sector has been making itself heard. CBR spoke to Mindtree’s Anshuman Singh, Europe General Manager & Head of Digital Business at Mindtree to get his views on what’s shaping the sector.
CBR: What is driving innovation in the banking sector?
A lot of it has been focused on sustaining innovation, which is about looking at delivering existing services cheaper, maybe faster and maybe better. I think there is a need to start looking at it differently. If you look at some of the consumer-facing technology innovation that has happened in the fast, the primary driver for that was to take the cost out of that question.
Whether it was ATM, online banking, the primary driver was cost. Of course it then prompted behaviour changes in the customers, as people stopped walking into branches and were happy doing their transaction on the online platforms of banks.
Banks so far have never faced serious competition between each other. The large reason for that was it was very hard to switch banks. There’s a huge amount of inertia. Once you’ve opened an account, pretty much everyone offers similar interest rates, you set up your direct debit, and it’s too hard to move banks.
What has happened over the course of the last year is that people are now moving their banks more frequently. The single biggest reason that people are changing banks is the poor customer experience. If you tie it back to how other industries have dealt with, you will be able to find some great new ideas.
CBR: How are banks responding?
There are two things we see happening. Because of the poor customer experience that people have typically been subjected to, two things happen.
If you look at the switching patterns, people have moved to bank accounts that may not be significantly better as far as the customer experience goes, but all of them are offering some kind of cash-back scheme. Those are some of the banks that have gained a lot.
If you look at it another way, this is nothing but subsidising or discounting your business, which is a straight-forward indicator that it is becoming increasingly commoditised and there is very little differentiation between what one bank has to offer and what another bank is offering.
If you take the premise to other industries that have been subjected to the same pressure of competition, legacy systems etc, one of the first industries that would catch your attention would be airlines.
If you look at what happened to airlines ten or fifteen years ago, there were these providers that said they would be able to offer customers a cheaper flight to holiday destinations where they would like to go which would be much more discounted than what some of the top tier carriers were providing.
In the case of EasyJet, Ryanair etcetera, they took over an entire customer segment, the young leisure traveller. As they conquered that segment, they have now started to target the next most profitable segment which is the business traveller.
If you try to map this to fintech, there are a lot of EasyJet equivalents in the fintech sector. You have companies like Hondura, that are offering you a 20 percent return on investment of the money you deposit with them through peer-to-peer lending.
So if you look at it, many of these providers have started to eat away one customer segment at a time. Over a period of time, the retail banking industry will probably see itself getting increasingly fragmented and also specialised.
If banks don’t start to get their act together and look at customer experience as a driver, they will start losing their customers one segment at a time, across the board.
CBR: You mention other companies taking away sub-sectors of finance; do you see any chances for finance to take business from other verticals?
It’s about turning the competition around on its head. If you look at every company that’s trying to eat into finance’s play, you can turn it around.
For example, my bank knows much better about where I am in my life’s journey and therefore what my possible needs might be. Am I getting married, am I having children, are my children going to school or college?
The moment you start digging deeper into that data and start thinking of yourself not as a custodian of money but of what people do with that money, your playing field will enlarge very quickly and very suddenly.
You can go and play in connecting people to education, connecting people to other people, connecting businesses to other businesses or selling travel products. There is so much more that can be done.
CBR: How will digital facilitate this?
At the heart of it is data, and making use of the data that they have. Then it’s about thinking of API-first. If you look at some of the other industries people have started investing big time in not only in APIs but in exposing those APIs to partners.
That is what allows them to be able to work and collaborate beyond their core product. For example if your airline can sell you a hotel, it’s because the hotel and the airline have decided to collaborate.
So many other industries have started to take a platform and API view of their customers’ life-cycling, where they can help them and which partners they can collaborate with. Then APIs become the means for that collaboration and creating a better customer offering.
CBR: The WEF report on fintech and finance (released this week) suggests collaboration rather than competition is the future for fintech and finance. Do you agree?
To a very large extent, the need to collaborate is not a choice, it will happen by extension. For example, a lot of fintech companies need to rely on the underlying payment structure to just be able to process payments. Take the classic example of the Starbucks loyalty card; it’s such a convenient mechanism to pay for coffee, it creates a $4 billion wealth of cash to be loaded on those Starbucks cards.
But has it done away with the need to have a Mastercard or a VISA or an Amex in the background? No, because Starbucks will never become a payment services provider or a network. So it’s not a question of a nice-to-have, you don’t have any other choice.
So while you can see that PayPal is trying to conquer certain areas of the market, MasterCard has come up with their own offering, Qkr! Everyone is trying to compete for the same pie of the customer segment. So in summary, collaboration is not a matter of choice, it will have to happen, because nobody owns entire ecosystems, not yet.