Over the past 10 years, technology has driven huge amounts of change in the finance sector, redefining the very foundations that the industry was built on. This fintech revolution is being powered by a wave of disruptive start-ups that are completely reshaping the finance sector, otherwise known as the ‘root and branch reconfiguration’ of the ageing banking and financial services industries.
Innovative platforms, apps and services are reshaping financial services through a sharing economy model, the same kind of collaboration which is behind the disruption of many industries. Some of the world’s greatest modern consumer tech developments, such as Amazon’s e-commerce business model powered by voice recognition, have thrived through collaboration. This new sharing model between businesses enables data to flow between companies, making processes more streamlined and simple for the customer.
Tech-savvy banks along with non-bank companies such as Paypal, Stripe, Square, Moula and Kabbage are eating into traditional payment industries – and with it, taking their share of the profits. The digital era of payments apps, online lending platforms and mobile wallets are all consumer-facing fintech services that are growing in popularity and leaving behind traditional banks.
Our company is part of this revolution through its development of a ‘financial web’, in order to provide more than one million small business customers with the options they need. Layers of the financial web are already built – it began with banking integrations and is evolving to include elements of machine learning, alternate lending, payments and financial data. The company’s accounting platform (system of record) provides a strong foundation for building out the financial web over the next decade. For the first time, financial institutions are able to see a complete view of a small business’ financial data, leading to better quality advice and services.
As all of their financial data sits in Xero’s cloud, enabling it to know about its customers’ funding needs, and the banks are sitting up and noticing. The company works with more than 80 financial institutions globally as it transforms into a small to medium enterprise (SME) platform to connect financial institutions, government departments and large enterprises in real-time. By securely connecting their accounting platform to their preferred providers, customers can receive same-day loan approvals (MarketInvoice) and access simpler international payments (Transferwise) from the providers at the click of a button, potentially saving thousands of pounds each year.
Xero’s recently-announced partnership with online payments platform Stripe is a prime example of how companies are collaborating to improve their customer offerings. By expanding its joint online payment solution through automated reconciliation, customers are given a greater choice of payment services, more cash flow control and enhanced efficiency through automation.
The Stripe reconciliation functionality means when a Stripe payout comes in through the bank feed, Xero matches the transaction for the user. All the transactions in Xero are tied to the Stripe statement line and automatically matched so they can be reconciled with just one click – all functions that streamline and speed up processes for the customer.
Millennials demand digital
It was nearly 10 years ago that digital-only banks began to emerge, with Ally launching in the US back in 2008. Benefits for this new generation of financial institutions include costs saved on brick-and-mortar outlets, as well as employee salaries. Worldwide, financial regulations have been beneficial for online banks, and often provide better rates and lower fees to customers. With the added advantage of their fresh footing in the industry, these institutions are much more open to change, innovation and moulding around their customers’ wants.
However, while the millennial generation pines for this flexibility and ingenuity, digital-only banks struggle to gain the trust of older generations, who have perhaps been with their current bank for as much as 15 or 20 years. They wouldn’t consider leaving the safety of their account for something that is completely alien to them. That’s why the best of both worlds is needed.
The customer journey
Banks have lacked innovative competition for years, offering varying packages, interest rates and deals to customers, but nothing has been truly innovative to challenge the way they operate. This points to a notoriously lacking part of the banking experience in the guidance a customer has on their journey – at every turn a customer is often treated with automated messages and letters through the post.
Automation isn’t set to reduce in the future, but when it comes to the customer journey, customers will be greeted with a more tailored approach. For example, Xero’s Advisor Directory, which determines the user’s location in order to put them in touch with a small business accountant, bookkeeper, integrator or financial advisor that is a certified trusted partner. This offers next-level consultancy between a customer and their finances. With consumer confidence dwindling as a result of global financial meltdowns, good relations and trust are now more vital than ever.
The next big thing in banking will be the comprehension and utilisation of blockchain technology – one of the most secure methods to encrypt financial data to ensure it is stored in a safe environment, and, in future, enable data to be shared to speed up transactions. Having access to an open, transparent ledger of bank transactions is useful for regulators, could help tackle fraud and create a cheaper, more efficient service for the customer.
Blockchain could allow an open application programming interface (API) between two corporations that automates the release of a portion of funds whenever certain parameters are met, such as the shipment of goods. This is likely to evolve, and it will be exciting to see how banks go on to develop this technology.
Lastly, the future of banking will see banks need to become much more social media savvy. Social media connects people in a way that nothing else can – imagine if customers felt comfortable enough to contact their banker through the likes of Twitter and Facebook in order to connect with them instantly. Our company is already building this connectivity into its Facebook chat bots to enable users to query their bank balance, cash flow and more.
Aside from direct messaging, it enables banks to build character – if banks developed a toolkit for each of their branches to publicise the community work they do via YouTube, Facebook and Twitter, they would develop a deeper connection with their local area and improve their reputation tenfold. It might sound obvious, but it goes a long way.
All in all, we see banking transforming through the use of technology into a much more tailored, personal and accessible service for the customer. If traditional banks can capitalise on the progress made by fintech and establish beneficial partnerships, the future is bright for all banking businesses – and the consumer is the one who will benefit.
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