Point of view: how UK banks can deliver better service to customers
The banks know they need to do better for their millions of UK customers, but the pressing question is how? One answer is to form partnerships with some of the fintech companies that are now gathering momentum as powerful players in the market. Can these potential competitors be the banks new best friends?
Jurgen Hutter, head of strategy and commercial development at AvantCredit (a UK-based online mid-term lender, which has recently secured debt financing of £130 million), offers a cautious “yes”.
“Banks and institutions have employed the services of technology companies for many years, but the nature of these arrangements have tended to be vendor relationships. Banks are very much focused on cost reduction, be it supply chain management, or initiatives such as branch and call center rationalisation or offshoring,” Hutter states.
“But recently the game has moved on and fintechs have created innovative solutions that fundamentally revamp the value of existing offers or even provide new turnkey solutions for banks. It’s a new level of co-operation.”
So are we about to see the banks pairing up with fintech companies, the strengths of both made available to us, the account holders?
According to Hutter, it’s already happening, although slowly.
“The partnership might not be exactly 50/50 in reality, after all, the banks are the much bigger partners, by every metric, but the relationships are definitely happening, the strengths of both arranged to create a sum greater than the parts.
“It’s true though that such partnerships are few and far between, which is both surprising, given the potential advantages, and unsurprising, given the practicalities these huge banking institutions face.”
So what do banks look for in fintech partnerships?
What are the criteria of common interests that can lead to a bank swiping right and matching?
“It’s about taking the initial vision and making it happen, but this is easier said than done,” Hutter says. “Both parties will need to be willing to educate, learn and together carve out a unique customer-centric solution, and then align the organisations and expertise to turn concept into reality. It’s a big ask, but the rewards for successful implementation are vast, it future proofs the bank, and it boosts the fintech in scale.
“It all comes down to compatibility. They’ve got to fit together. First the tech has to be compatible. Banks struggle with technology and understandably so. This is not because of a lack of investment, far from it. For many years banks have been the largest spender on IT, approximately $360 billion in 2015 according to Gartner. The problem for banks is the bulk of their tech spend is repairs and patches, rather than research and development (R&D).
“Like a stately home, not all of a banks IT system is from the same period. It’s a weakness for the banks, but tech is a strength for the fintechs, so it’s one of the fundamental reasons for partnering. More complicated is culture compatibility, here the fintechs need to make the effort to understand the corporate culture of banks, the way they operate internally. In turn, the banks need to be able to take on board the innovation and excitement of new blood that fintechs bring to the table.”
So what might the future look like, in a couple of years, once these teething problems have been settled?
Hutter paints a promising picture.
“If you look at consumer lending, many banks still take far too long (often a week) to underwrite a customer. It should not take that long, and importantly, once a customer has decided to apply for a loan, a fast and uncomplicated application process and speedy funding is expected and should be delivered.
“Any consumer financial service that takes days or even weeks could, with the correct partnership, can be completed in hours, possibly minutes,” he believes.
“Getting a bank loan, or other basic banking services will be like requesting an Uber, or ordering from Amazon. Fast, efficient, painless, and good value. It’s inevitable progress, and the benefits will reach all of us. It’s just a matter of time.”