For Banks to Compete With FinTechs, They Need to Act Like One

The financial services landscape is an inherently customer-centric one.

Within it, the winds of change around customer behavior and expectations about their banking relationships and financial journeys have been blowing stronger than ever.

“Consumers have come to expect a lot of capabilities in the palm of their hand, 24/7, and a lot of what we’ve traditionally thought of as branch functions or back-office functions are being pushed there,” Vish Shastry, chief product officer at Banyan, told PYMNTS for the series “What’s Next in Payments: What is a Bank? The Changing Landscape of Banking and Financial Services.”

Gone are the days of rigid banking hours and branch-centric services, he added, noting that consumers expect a plethora of functionalities at their fingertips, from simple transactions like bill payments to more sophisticated features like card controls and peer-to-peer payments.

For businesses operating in retail — even grocery — that saw their operating models upended and transformed by the COVID-19 pandemic, this imperative around digital innovation is no surprise.

What is a surprise is that for retailers and grocers, consumer behaviors and preferences have returned to the in-person experience — while for banking, they have not.

“eCommerce reverting back to its pre-pandemic growth curve was surprising,” Shastry said. “I would have expected the convenience of delivery for new verticals like grocery, buy online and pick up in store, to have driven a lot more stickiness.”

“What has not been that surprising is the continued pace of change within banking,” he added. “… From a financial services perspective, people just really continue to value convenience.”

Digital Convenience Has Ushered in Relentless Innovation

Shastry pointed out that FinTech platforms like Robinhood, Cash App and Venmo have disrupted the status quo, compelling banks to reimagine their offerings continually and challenging traditional players to keep pace with evolving consumer preferences.

At a foundational level, banks now finally have the information they need to drive the right recommendation to the right person at the right time.

“Banks are now using more data to drive recommendations to consumers,” Shastry noted, adding that Banyan is working to target customers. He emphasized that consumers want different things from banks depending on their customer type, and financial institutions need to apply design thinking principles to understand their customers.

“Data science can help financial institutions understand their customers’ behavior better,” he said.

Consumers’ growing affinity for convenience and personalized experiences has spurred financial institutions looking to compete or win share to double down on their digital transformation efforts, with more players across the landscape using technologies like artificial intelligence and machine learning to enhance customer engagement at scale.

By harnessing data analytics and AI-driven insights, banks can deliver targeted recommendations, optimize cross-selling opportunities, and foster deeper connections with their customers.

“If you’re a financial institution, you’ve got to embrace exactly what a lot of the FinTechs are doing, which is building frameworks and tools for experimentation,” Shastry explained.

The Quest for Personalized, Frictionless Banking Experiences

Consumers want their banks to help them understand and manage their financial health, and Shastry emphasized the role banks can play in proactively guiding customers toward sound financial decisions while treading cautiously to avoid intrusiveness.

Against the contemporary backdrop, transparency, trust and a nuanced understanding of customer preferences are linchpins for fostering a more productive lifetime value customer relationship.

The opportunity is in “marrying the data that merchants have about what you purchase with the data and platforms and reach that financial institutions have to be able to get the right product in hand with their customers,” he said.

Shastry also explored the burgeoning trend of FinTech collaborations and the rise of open banking initiatives. While acknowledging the potential of such partnerships in driving innovation, he emphasized the need for robust regulatory frameworks and due diligence to mitigate risks effectively.

Looking ahead, he said he sees a future where data-driven personalization transcends boundaries, seamlessly integrating with merchants’ insights to deliver tailored financial solutions.