The expansion of new fintech apps started a trend of eroding revenue and profits from banks and credit unions, generating a sense of competition with app developers. But technology innovators and financial institutions have worked together for generations. Visa and Mastercard are prime examples of collaboration between FIs and providers.
Meanwhile, Jamie Dimon, CEO of JP Morgan Chase, said: “I don’t buy that fintech is completely different. Technology has been changing the world since we invented agriculture. My whole business career, technology has been a critical part of what a bank does. Fintech isn’t just about good technology but about solving business pain points.”
Why Are Financial Institutions Adopting New Fintech Apps?
As standalone fintech apps became popular, the new customer base for FIs has diminished. The average age of a credit union member in the US is 47. In Canada it is 53. Most community banks and credit unions have only one app, their banking transaction app. Discoverability by non-customers and non-members is impossible, as the user needs to hold an existing account to get past the initial screen that requires a login.
Fintech apps provide a mechanism for banks and credit unions to not only enhance services to existing customers, but also to attract new customers/members with apps that do not require an existing account. One example is the proliferation of free credit score apps provided by FI’s without the need for an existing account.
Bankrate’s conversion of the Quizzle app (purchased from Quicken Loans in 2016) to Score & Report, white-labeled for use by community banks and credit unions, enables a branded and cost effective solution for quick adoption of new technology.
Hawaii National Bank’s Hawaii Score enables existing bank customers and non-customers the capability to access a TransUnion credit report and score without the need for a credit card or an existing account with Hawaii National Bank. In addition to branding, tips generated to improve the user’s score direct the user to HNB products, providing in-context customer acquisition. And deep data reports fed back to the bank shed light on valuable Cost of Acquisition information and behavior patterns.
FIs face shifting consumer tastes and are compelled to act quickly. The 2016 Millennial Money Mindset Report, released by iQuantifi earlier this year, reported that nearly 42 percent of millennials want to manage their banking relationship exclusively online. “Millennials do not want to go to a bank branch,” said Silicon Valley Bank head of payments services Eduardo Vergara.
Why Are Fintech Developers Turning to FIs For Distribution?
US investment in fintech rose from $3.3 billion in 2013 to a peak of $27 billion in 2015. With new fintech app offerings struggling to monetize, investment in 2016 dropped to $12.8 billion. As a result, a new era of collaboration between developers and financial institutions has emerged.
Discoverability challenges have crippled the advance of many new fintech innovations. The Apple Store has over 2.2 million apps and is growing by 50,000 per day. Google has over 2.8 million apps. Community banks and credit unions provide local marketing distribution to over 200 million existing customers/members. Since the number one adoption mechanism for new apps is word of mouth (or seeing the app on a friend’s phone), FIs are strategically placed to engage a viral marketing flow.
One App Is Not Enough
Fintech apps are singular in purpose. Each one appeals to a different market target. US Bank has 42 branded apps in the App Store. BBVA has 34. Smaller financial institutions cannot afford the time and expenses required for development or integration with today’s most popular apps and are investigating new solutions for engaging effectively with new technology. Community banks and credit unions are working through their associations to adopt new apps, using the strength of membership volume to find affordable and flexible solutions. Western Independent Bankers, based in San Francisco, provides a white-labeling and deployment platform, created by Linqto, that lets members choose an app, brand it and launch to the Apple and Google Stores automatically.
“All of our banks want to appeal to the digital generation and develop customer loyalty through service and innovation,” said WIB President & CEO Michael Delucchi. “By using the WIB Apps Store, banks can now transform the customer experience without the white-label and branding costs that have traditionally kept them confined to the standard banking transaction app. There is a framework of opportunity here, and we’re excited to see our members take advantage of it.”
As banking technology is rapidly expanding, fintech developers are best suited for creating the solutions. Banks and credit unions offer new direct distribution channels for these apps, through customer base loyalty. With this new sense of cooperation and collaboration, both sectors benefit while meeting market demand for the latest banking technology. This expansion of consumer use creates a strong base for banks and credit unions to increase product sales, offerings and new business growth.