Threats from new market entrants and growing customer demand have created a perfect storm of change for the banking community.
From these challenges comes fresh opportunity. Specifically, the opportunity for traditional banks, to not only enhance their existing services but innovate their sector and stave off competition from digital counterparts.
The key to enabling this new era of growth lies in banks’ most valuable asset: customer data.
The truth is that data is a strategic asset in the banking industry. A new era of customer-centricity has spawned demand for services that take banks beyond the traditional ‘spend and save’ repository.
Neobanks have led the charge in making this change. Born digital, they have leveraged the customer data at their disposal to offer lower, or even zero fees, on some of their legacy counterparts’ most valuable revenue lines.
Consequently, many of the services that were once firmly the remit of large banks have been reclaimed by fintechs.
Herein lies the threat for the big banks: that these traditional lines of revenue are not just stolen by challengers. But, that this leads to wholesale customer churn, with the banks relegated to nothing more than a holding stop for money that is immediately moved to another account, where customers can reap the benefits of personalised service.
The irony is that the traditional banks have a legacy of customer trust upon which to capitalise, which the neobanks are yet to achieve. By virtue of their brands and longstanding presence across the industry, customers are far more likely to trust the traditional banks with their data over an unproven neobank.
With an enriched data set, banks can not only enhance their existing services to keep par with the challengers. They can in fact forge new revenue streams that reshape the traditional bank-customer relationship.
For instance, analytics-driven payment processors can arm big banks with the data to offer customers products at point of spend. By engaging with these processors, banks of the future could offer services they could not in the past. This could include offering insurance on small purchase items or Buy Now Pay Later. Or, even credit on large ticket items, where customers could buy a car using a debit card and immediately get an offer from their bank to their mobile device with appropriate leasing terms.
By offering services such as these, banks have literally a wealth of new opportunities through which they can grow. With the opportunity available to harness data in this way, banks should not be seeking to merely match what the neobanks offer customers. They should be looking at ways in which they can use customer data to displace the threat and set a new industry standard.
A recent report from research house Celent showed that 38% of banks stated data monetization as a key strategic priority. At the same time, the report showed that 73% of banks see an increasing competitive threat from niche and nonbank players. The threat is as clear as the opportunity. Which way the change will go is in the hands of the banking community.