May/June 2019 Edition

Your Voice Column: Success In The Era Of FinTech

Between robo-advisers, blockchain and biometric data to access bank accounts, a new era of accelerated technology transformation has emerged, affecting every aspect of financial services and altering the banking experience. 

As quickly as new technology surfaces, so too are long established banking tools, such as paper checks, being extinguished. We are experiencing remarkable growth in online payments in the U.S., which has been behind Europe and Asia in adoption up until now. Currently, three-fourths of the transactions processed through U.S. banks are digital. The industry has also been focused on real-time payments, as companies like Venmo and PayPal shift consumer expectations and cater to their need for immediacy. 

These advancements in technology are driving the entire market to a more digital-centric environment, which could put earnings and capital at risk for many banks. In fact, McKinsey estimates legacy financial institutions could see profits decline between 20 and 60 percent by 2025 due to fintech disintermediation.

Moreover, consumer expectations continue to evolve, especially as we witness the biggest transfer of wealth in history. With this new generation of consumers, financial institutions can expect new demands, particularly in mobile, internet and other fully digital appliances. Not surprisingly, these new consumers are looking to online provides such as VaroMoney, Venmo and Kabbage. They view traditional banks and lenders as outdated and unable to deliver the types of products and services with the convenience they expect. 

In fact, a study by Fidelity National Information Services (FIS) found that only 23 percent of customers believe their financial institution is meeting their expectations. In response, some institutions are digitizing the lending experience, but many are still losing out to the online, alternative institutions due to convenience and speed in decisioning. 

Mortgage lenders are also being impacted by this technological shift. Last year, Quicken Loans passed Wells Fargo as the largest mortgage lender in America. Nontraditional lenders like Zillow are adding even more pressure to traditional mortgage lenders to meet the demands of today’s consumer. In both examples, these organizations already have strong brand recognition, making it even more challenging for traditional institutions. The good news for mortgage lenders is that their execution doesn’t yet match their marketing, but that won’t last.

Finally, we’ve seen rapid growth in P2P and crowdfunding platforms like LendingTree and Monevo since the financial crisis. This makes sense. After the crisis, consumers lost trust in traditional financial institutions, and a supermarket to educate and facilitate choices is beneficial.  But just like in a supermarket, this shelf space is purchased, and consumers can be misled.

We now live in a digital world – we see this in the younger generations just coming of age to use financial tools. My 6-year-old sons mastery of all things digital is a great reminder of this every day. This technology is reshaping expectations, changing the financial services industry and fueling competition as new types of organizations emerge, all contending for market share. In response, traditional lenders must digitize the customer experience, leverage technology and data and prioritize security and safety.  

Create a Truly Digital Customer Experience

A digital customer experience is no longer a benefit. It’s a requirement for today’s lender. Millennials and the quickly emerging Gen Z market expect to do anything and everything from their smartphones, and it’s not just them. Older generations are also becoming more comfortable and reliant on digital channels. My 78-year-old mother is an ardent user of her iPhone for communications, healthcare, financial and travel information. Lenders must now deliver a seamless customer experience across all channels and devices. 

For many traditional lenders, there is a lack of consistency between channels. As mobile becomes a primary channel, lenders must embrace it and explore ways to leverage it to enhance the value they provide to consumers. 

Lenders must also evaluate their digital and in-branch experience and ensure consistency between the two as well. We are working hard on this at Gateway.  Leveraging the Internet of Things and wearable technologies will be key to success. By looking to innovators like Apple and Google, lenders can create unique services like scheduling appointments with loan officers from their Apple Watch or Google assistant. 

Additionally, immediacy and real-time payments are important. A digital platform should alert users of payment dates, enabling them to avoid late payments. The possibilities are endless, but creating a superior digital experience is critical for competing with today’s technology-driven alternative lenders.  

Leverage Modern Technology, Data and the Cloud 

Increasingly, alternative lenders beat out traditional lenders because of the speed of the application processes, fast decision-making and the convenience of an online platform. In response, lenders must leverage technology and data. With the right systems in place and adequate data, lenders can speed up decisioning and create a more convenient and simple process for borrowers. 

Cloud technology is also critical and enables lenders to implement real-time updates to loan origination software that leverages data for a faster decisioning process. For any lender not currently operating on cloud-based technology, this year is the time to begin migrating. 

In the Wake of Data Breaches and Cyberattacks, Security Must Be a Priority 

Finally, security must be a priority, especially as a digital environment exposes financial institutions and lenders to greater risks and security concerns. In fact, in 2018 alone, data breaches compromised the personal information of millions of people around the world. T-Mobile, Quora, Google and Orbitz were among some of the companies that faced costly breaches, and Facebook dealt with several that affected over 100 million users. 

Between the growing number of data breaches and cyberattacks, digital mortgages are substantially at a higher risk than standard ones. Lenders can no longer afford to rely on old infrastructure. Instead, they must focus on upgrading their digital experience and prepare for the possibility of targeted attacks, which is inevitable. 

Ultimately, by increasing their emphasis on security protocols and educating their employees and customers, traditional lenders can secure their digital assets.As technology evolves more quickly, traditional lenders must prioritize the customer experience and place the needs and expectations of the borrower first. If not, they will continue to lose out to alternative lenders, who are rapidly gaining market share.