Ron Shevil at Forbes recently put out an article pushing back on a prediction posited in the Wall Street Journal: that banks will finally overcome fintechs after lagging behind in the arena of customer acquisition for the past several years. The position is laid out as follows:
“Disrupting banks when interest rates are near zero is playing on easy mode. As rates rise, the game will get harder. Banking has been carved up. Financing companies, originating mortgages, and making consumer loans have migrated to fintech upstarts. As interest rates rise, and money isn’t sloshing around freely, the question becomes whether upstarts that have thrived on market funding will once again be at a disadvantage.”
Shevil disagrees with this premise, arguing that it’s a reductive argument that over-emphasizes the availability of cheap capital as instrumental to Fintechs’ success. He goes on to highlight that Fintechs continue to hold the trump card over banks in four key areas: engagement, experiences, diversified portfolio composition, and overall profitability.
The article focuses mainly on bank customers that are average consumers, and paints a cautionary tale for banks: that unless they alter the status quo, they will continue to lose market share to disruptive fintechs. We do not dispute this perspective, but would like to provide an addendum to that argument: the increase in interest rates won’t stop the flight of commercial and business banking clients, either.
Many businesses - retailers, restaurants, e-commerce brands, and other commercial clients - all rely on issuers and acquirers to assist in the processing of digital transactions. That doesn’t necessarily mean that they’re going to banks for these services. In fact, many Fintechs have popped up seeking to cut banks out of the issuing and acquiring equation altogether - and they’re gaining steam - for all of the same reasons that they’re winning the consumer banking battle, too.
Banks need to think long and hard about how they plan to address increasing losses to fintechs. Most importantly, they need to engage more actively with their business banking clients, and provide better overall experiences. That means ditching the frustrated automated answering systems, breaking down knowledge silos, and empowering business clients to take care of their own journeys, so that they can focus on what really matters: conducting their business. Simply put, banks need customer experience orchestration software. Until that sinks in, fintechs will continue to eat their lunch, while the banks eat crow.