Posted by & filed under Banking, Customer development, Customers, Fintech, innovating, Startups.

The digital revolution has happened. And now it’s banking’s turn. Fintech are here and banks can lose up to 60% of their retail profits in the next decade. But will they? And why would they? What is going to happen in banking and fintech?

About a week ago I attended MoneyFintech-seminar and got to listen to the brightest minds of fintech and banking. Here are the four big things that are hot now and in the future of fintech and banking.

New regulations

When talking about banking and fintech, regulations are a topic you just cannot ignore. The hot potatoes of the industry: PSD2, open banking, and many others are wreaking havoc in banking.

PSD2, open banking – new regulations level they playing field for fintechs

One key goal of the new regulations is to level the playing field between fintechs and banks. It means more opportunities for more new fintechs. And that means new opportunities, new companies, new jobs and so on. The industry has been booming and the new regulations don’t seem to make it any slower, the opposite.

 

Bad news for banks: half of consumers are open to 3rd party providers

Source: Kevin Poe, CGI

Consumers don’t feel connected to their banks and half of consumers are already ready to try 3rd party service providers. While consumers still prefer their current bank to provide new services it is greatly declining. All this is great news for fintechs but not so good for banks. Banks can no longer just sit on their asses and wait to see what happens.

 

It’s up to banks to decide the role of fintechs in the ecosystem

An interesting point in the speeches was that in the end, it is up to the old masters of the industry, banks, to decide what kind of role fintechs will take. Will banks refuse to change with the industry and let fintechs take over? Will they re-invent themselves and fight back? Or maybe the most beneficial for all: will they learn to collaborate with the other players in the ecosystem?

Not everyone can nor should do everything. Instead of wasting time on trying to win everyone on every battleground, banks should collaborate with the ones that would give complementary value to your offering.

“Fintech will bring lots of opportunities for everyone. But it is true only IF collaboration happens.” -Annukka Paloheimo

Like Lars Markull said: “PSD2 is not THE solution for banks, but something that pushes them to the right directions.” It forces them to act instead of just watching passively in their ivory towers till they have become completely obsolete.

 

Customer focus

The regulations are changing and fintechs have the opportunity of a lifetime. But the biggest winners will be the customers. They are the ones who will have all new kinds of financial products, their old services will be much simpler, and for every product and service they have been forced to get from one provider, now they will have an excess of options. And as we know, options is never bad for the customers. But for banks and fintechs it means fiery competition.

“Thanks to fintechs and technology houses customers are aware of their options, that there even are options. That has shifted the power from the banks to the customers. Now customers are in the driver’s seat.” – Kirsi Larkiala

The winners will be the ones who serve the customers the best. The ones who don’t just focus on the customer but what the customer is focusing on. If you can bring something great to the things matter most to the customers, that’s the recipe for success. Or like Jarle Holm put it: “If it’s going to increase your customer’s equity, it’s going to grow your equity.” And the key to that is to stop thinking about customers as customers and start thinking about them as humans.

 

Illogical, obsessed with social relationships, i.e. your customers 

The biggest winners will be the companies that understand what customers essentially are – humans. Beings who think they are rational, but in reality are far from it. Beings to whom social relationships are more important than almost anything else. That’s why customers’ losing the feeling of personal connection to their banks is such a big deal. And that’s why the companies who also serve the social relationship needs of their customers will succeed. Companies need to understand how their customers make their decisions (not as rationally as you’d think), and how to build strong relationships with their customers. And to think about their future customers already today. For example by 2025 millennials will make 75% of the workforce. The ones who will start building relationships with them then are way too late.

Collaboration

The future is not ‘ready’. It needs to be innovated together with the whole ecosystem.” – Kirsi Larkiala

In fintech, one as often mentioned topic as the new regulations is collaboration. In fact, 82% of financial institutions expect to work with startups in 3-5 years.

 

82% of financial institutions expect to to work with startups in the next three to five years.

Source: PwC

1 in 2 banks expects to partner with fintechs later than in two years, which is pretty slow (even too slow?). They see the benefits, but at the same time they have a huge responsibility. Banks spend on regulation and compliance 321Bn (inc fines). Having customers’ trust is more important than pretty much any other industry. And if something happens because of the 3rd party, the bank’s partner, that trust is lost. The customers see that the bank is responsible of their partners. But regardless banks know they can’t not collaborate with startups. Why? They need the innovations & to learn.

“Innovative companies seeking aggressive growth are the future of Finland and Europe.” – Eeva Grannenfelt

Working with startups to get innovations

There are many reasons corporations aren’t the kind of innovation powerhouses startups are. One of those is the fear of failure or losing their reputation by putting out something that is not ’perfect’. That is why the startup-like use of MVPs might sound absolutely horrifying. And they do have a point. Like Pekka Puustinen from insurer Ilmarinen said, corporations have a whole different kind of reputation to keep than startups. Putting out ‘almost ready’ products is not as easy for big corporations like it is for startups. ”Porsche can’t put out a car that almost works”, he said.

As banks have their constraints they go for startups for innovations. And it makes sense. Startups are innovation powerhouses without the constraints they have. They don’t have such a big reputation to upkeep, and they are the masters of using failing as an innovation tool. Eeva Grannenfelt even said large companies have outsourced the R&D partly to growth companies. Startups definitely can be a tool for banks to meet the new expectations of their customers and do so without risking their reputation.

 

Working with startups to learn

But none of the above means the banks can just sit around. While startups can be an amazing way to find the much-needed innovations, they themselves need to change for the future. While Porche can’t necessarily put out ‘almost ready’ cars, there are multiple ways more ‘startup like’ approach would work wonders for corporations. That’s why they should learn from startups. Learn to be faster, agiler, more innovative. And even fail. Like Topi Järvinen said: “Failing isn’t necessarily bad. You can learn a lot from it and thus do better the next time.” Failing (the right way) is an essential part of innovating and by no means automatically means PR disasters.

Based on the talks banks gave that’s exactly what they are looking for. Most of them talked about how they need to reinvent themselves and learn from the startups. That’s why banks should use accelerators and startups just for innovations, but as something to change their entire organization. The ideal situation would be getting innovations from outside the house (startups) but also being able to innovate in-house. And at the same time be more agile, fast, more startup-like and less stiff like corporations usually are.

 

Accelerators shouldn’t be just tools to get innovations, but tools to change the whole organization

Source: Topi Järvinen, Nestholma

 

China: the promised land of fintech

An old Chinese professor of mine joked that in China copyright actually means the right to copy. China definitely has been an excellent copier of all innovations big and small. But now China has gotten far from that: they have changed from copycats to copy tigers. In China, fintech is booming.

China is a great breeding ground for fintech. The country is going through rapid urbanization, they have regulations that support the growth of inland fintech innovations, a massive and underserved SME market, rapidly growing of e-commerce and also explosive growth in online and mobile penetration (read more here). Technology is changing so rapidly that they are skipping many of the unnecessary steps like landlines, dial-up internet and so on, and going straight to mobile payments innovations like that. And the people are more than willing to do so. For example, 40% of Chinese consumers have adopted mobile payments, which is massive. China truly is the perfect breeding ground for fintech innovations.

“Fintech in China is delivering the promise of fintech – making changes of unimaginable size” – Ronit Ghose

China is coming and the West better listen

China’s policy has been to forbid Western services like Google, Facebook, Youtube, and many more to have their own versions instead. There are multiple reasons why, one of them being giving the business opportunities to Chinese companies. The Chinese not only copied the service but also evolved them further (e.g. mobile wallet in their social media services like WeChat). Before you could just think ”oh well, the Chinese have their own versions, so?” and move on with your day (unless, of course, the Chinese market was important to your business). But now that is not possible anymore.

The Chinese consumers are the fastest growing segment in the world. Now there are 300 million Chinese consumers and by 2022 there will be 600 million. And it’s not just the massive amount of them, but also their great purchasing power. McKinsey estimates that by 2022 the upper middle class will account for even 54% of urban households.

 

The upper middle class will account for even 54% of urban Chinese households

Source: McKinsey & company

In short, there is an ever growing amount of wealthy Chinese who want to spend. And they don’t just want to spend it all at home. They want to travel and spend it on foreign (premium) goods.

 

Chinese outbound tourism growing strongly

Source: Johan Andrén, Handelsbanken

It may sound like the Chinese are taking over the world (and maybe they are), but in our current interconnected world, all that spending is going to mean more jobs all over the world. And that’s great (if you are not an avid tinfoil wearer ;))! But that also means the so-called Chinese versions of everything are now also relevant here. Or they should be. Like Ronit Ghose said: “When the mass of wealthy Chinese tourists come, Western companies have to accept Chinese payment methods or they get nothing.” On the streets of my home city Helsinki, there are more and more signs in Chinese. Talking about the Chinese payment methods the shops now accept, wishing happy Chinese new year and so on. The Chinese are coming and you should be ready.

…or should I say Asia is coming instead? China definitely is ahead, but other countries like India are catching up fast. You should keep your eyes peeled.

 

Antti Kosunen ended his portion with the following quote, and it seems like the perfect quote to end this post: “If the rate of change outside your organization exceeds the rate of change inside, the end is near.” – Jack Welch

 

Posted by & filed under Banking, Corporations, Fintech, Startups.

I have always believed the world will be a better place when we work together, collaborate, instead of pushing others down to gain what we want. Working at Nestholma I have come to realize collaboration isn’t good for just individuals, but also businesses. In some industries, it has even become the only way to survive in the heated competition. That’s the case for example in fintech where customers are becoming more and more spoiled with choice and the whole industry is changing at an incredible speed.

At Nestholma, we talk so much about collaborating that it should be in our slogan. (Oh, wait…) But it just can’t be helped. When you spend every day with startups, big corporations and banks, you are bound to see not only the good parts but also the parts that are lacking. And how well those complement each other. You can’t really help but become part of the cult called collaboration.

When you take a look at our portfolio you will see startups doing exactly that, providing something that helps banks become better banks for their customers. And they are damn good at it (excuse my language…)! But of course they are, they went through a bank accelerator. They found a fault in the banking world and developed their solution further together with a bank. So, it is not just what the customers want but also exactly what the bank needs. The startups have been able to create a solution that is well validated, and banks get an amazing innovation, just for their needs and way ahead of the rest of the industry.

Startups do in days what corporations can do in month, if not even in years

When you are used to the corporation timetables, many questions if it really is possible to do magic in such a short time as the accelerator program is (our programs itself lasts usually 3 months). Well, it is: startups are the best magicians in that respect:

They don’t call accelerators supercharged for no reason. Startups go through incredible transformations and banks get to hand pick from a pool of innovation made with their own requirements. And they get them way ahead of their competitors. At the same time, the banks can’t help but also learn the agile working style startups have. But the real winners are of course the customers – they are the ones whose lives are being made better and better.

So, what kind of startups are these ’bank-validated startups’ then? Glad you asked because I have 4 of them to introduce.

 

Jenny customer service AI artificial intelligence

What is the first thing that comes to mind when you think about customer service online? If you are a customer, it is probably the long wait. And if you are a bank: the massive amount of inquiries you get every single day. And that is exactly the problem. Banks get so many customer inquiries every day that handling them in a timely manner is pretty much impossible. Out of the mass of inquiries 80% are recurring. That means customer service people spend most of their day answering the same questions over and over again. That is all time away from solving urgent and more problematic cases. Or so it was.

Jenny has brought artificial intelligence (A.I.) into customer service. Jenny teaches their A.I. to think using existing knowledge bases: emails, chat logs and so on. The machine then figures out the common inquiries and the answers for them. It also learns how to answer without sounding like your common bot. In fact, the customer won’t have a clue she or he is not talking with a human, but a machine. The only thing they wonder is how on earth they got their response so fast. And that’s what you call amazing customer service! Jenny also helps its human work mates by providing some of the common answers to the customer’s problem and make solving the that much more efficient. Hello, good customer service!

  • Works on the languages the company works
  • Learns constantly and can thus solve more and more customer inquiries
  • Works on the same tech the customer already has – no money or resources wasted on changing systems
  • Techstars Tel Aviv superstars

 

Collectly loan collecting banking

We all know not everybody pays their debts in time. And that poses a tricky situation: how do you get your money without destroying the relationship with the debtor?

For banks and businesses, this can easily mean you get the money but lose all future business with the debtor. IF you even get anything. Now banks and other businesses send generic and un-engaging letters and make disturbing calls. No wonder the borrowers just ignore them or do the best they can to avoid them. The business is not getting their money and the customer relationship is pretty much lost, maybe forever. Just in the Nordic region alone, that means 16B of lost money. That is if you don’t use Collectly.

Collectly maximizes debt recovery while retaining the customer. To do that they use AI and machine learning. They profile the customer and then contact him or her via modern communication channels with messages that are both personalized and engaging. That is much more transparent, friendly and efficient way of collecting debts. In fact, Collectly has a success rate of 56 percent in collecting debts with their early customers! They recognize the debtors who might have problems in the future and deal with the ones who already do.

  • Collection rate up by 60%
  • 10 x more cost efficient
  • 6 x increased customer retention
  • Just finished Y-combinator, and has been featured in hot publications like Techcrunch.

All in all, you will get what belongs to you AND you get to keep the customer and can make more business with them. You are happy, the customer is happy, a clear win-win situation.

 

Nordigen banks banking loan application

Banks reject too many good loan applicants due to insufficient credit history. At the same time recognizing the bad loans is not always so easy. Nordigen makes the credit decisions easier, more accurate and much much faster than before (in 10 seconds to be exact).

Be it hobbies, shopping, groceries or even gambling, almost nothing in life is free. But the good part is all that leaves traces, transaction history. Using the data from the customer’s account and payment card Nordigen’s machine can identify the customers with riskier and safer behavior patterns – whom the bank should or shouldn’t lend money, even when the credit history is insufficient. Banks can increase their lending while diminishing the risk. At the same time, Nordigen helps segment the bank’s customers, even by their hobbies, whatever would help the bank in its operations.

  • Flexible solution, works with all strict local banking regulations
  • Easy to set onto existing infrastructure

 

Fjuul health app tracking

Sports tracking? Isn’t that for athletes and health nuts? Not anymore – Fjuul has brought digital health to everyday people and everyday life; be it a health nut or just your average Joe. Like with foods, exercise about the quality, not quantity. And Fjuul is just the tool to help you. Their app tracks your day and tells you which physical activities have the most impact on your health and fitness. You can then compare and see what kind of activities in your day-to-day life have the biggest impact on your health. And when ’good health’ isn’t enough of a motivator, Fjuul also helps with that. Your movement becomes a currency that you can trade for discounts and goods (= the number 1 reason why I take the longer route home nowadays ;).

But why I am talking about a health app on this post? Because it is nothing but relevant. Insurances aren’t really considered sexy, especially by millennials. There is a burning fight for customers, but making yourself the choice number 1 isn’t so easy. And even keeping the existing customers is hard: insurance companies don’t really have that many chances to interact and engage with their customers – build a real relationship, loyalty. At the same time problems like cardiovascular diseases are on the rise and considering our current lifestyles, fast food, and office work, it is only going to get worse. And that’s what keeps the guys responsible for the health claims up at night!

Those are just some of the things Fjuul can solve. Customer acquisition through their offers, relationship building, activity based insurance products, corporate wellbeing programs, just to name few. And yes, there is no doubt Fjuul is attractive in the eyes of the customers – it is a top featured fitness app in over 100 countries!

Forget competing – the future is in collaboration

Banks and fintech startups have gone a long way from fierce competitors to collaborators. And the same is happening to banks with other banks. Many changes are coming to the banking industry, but one thing is sure: the biggest beneficiary are the customers. Be it the number of options, PSD2 – the customers have the power and the banks and startups need to listen. Or better yet: create something better than the customers could ever imagine.

Personally, I am excited to see how the banking industry is going to evolve through collaboration, and even more excited to enjoy the growing ease of my everyday life as a customer. How about you? What are your thoughts on the new era of banking?

 

Related post: What I learned from talking with 40+ banks from all over the world

 

Posted by & filed under Banking, Fintech.

Over the past two months, I have been discussing with almost 50 banks from all over the world: from Asia to North America and everything between. By doing it I believe I have gotten a good look into what is going on in the heads of major banks; what do they think about the future and especially the rise of fintech startups.

First, you can forget the image of banks as dusty corporations that fail to admit the world around them has changed. They are very much aware of it and working hard to keep themselves relevant in the eyes of their customers. It has been truly striking to see how smart the people in banks are. They have such a vast experience of banking they know it like their own pockets. But not only that: many have come outside the banking world. And all that shows. The banks know both the worlds inside and outside the banking bubble. At least the banks with whom I have been talking.

Great advances in technology & changes in regulations make predicting the future difficult

Regardless of where the banks were located, blockchain, artificial intelligence, robotics, and the PSD2/open APIs came up over and over again in our discussions. It is clear these are the things that are going to have a great impact on the future of banking, but how – that is what banks are just starting to grasp. It is no easy task: before you could predict the future by looking at the past, but that doesn’t work anymore. Things like technology are developing at an exponential rate, and it is close to impossible to imagine what banking or even the world in general will look like in 10 (or even in 5) years. All that makes developing the banking industry a challenge. But it is not a challenge only for banks: investors and startups are all facing the same issues. And that is something banks have also noticed.

startups banks and banks collaborating

From competitors to collaborators

Another common nominator in our discussions was that the banks are not thinking about fintechs (or even other banks!) as the enemy anymore. They recognize the industry is under such big disruptions that they have to work together to stay relevant. Both banks and startups have their advantages, things they do and know better than the other. Using those together is going to bring much better results than them trying to just figure it all out on their own. Banks also understand that startups can bring them the kind of innovations they would never be able to create by themselves. Startups are free of many of the innovation limitations banks have, and cooperating with them is definitely a good idea.

Banks & startups both have their own advantages, thus working together is definitely a good idea. Tweet about it!

One rising trend is collaborating with other banks. Before working with your competitor was almost unheard of. But now banks are looking to join hands with other banks and tackle the challenges of future together. It is a smart move as a lot of the challenges they are facing are the same. They want to work with other banks in different environments, development phases and so on to get a more complete picture. For example, banks in cashless societies have very different experiences than banks in cash-strong environments. By combining all that knowledge, banks are much more equipped to stay relevant to their customers in the rapidly changing environment.

By working together banks are much more equipped to face the challenges of their rapidly changing industry. Tweet about it!

Another point supporting collaboration is scaling up the new innovations banks create. Even if one bank created the greatest innovation since the beginning of banking, it is hard for it to become a success, if it is not widely used. When banks work together it is much easier to scale that innovation. Of course, the innovation itself is also likely to be better when done via collaboration.

Overall, there is a strong momentum to reinvent the traditional way of banking. Banks are not only changing because they are forced to; they want to lead the change. That momentum is going to bring great possibilities for everyone, especially the ones that are in it together.

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