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The fintech revolution: More than 
just another Venmo-type app

FAITH LAB TECH BYTES || ARNOLD SCHUCHTER

JULY 1, 2018

The future of financial services is dependent on partnering with “fintechs” (businesses that aim to provide financial services by making use of software and modern technology) to reinvent themselves as digital businesses. This mean much more than simply launching more mobile payment apps like PayPal’s Venmo. It means that everything involving currency, from banking transactions to mortgages and insurance claims, will involve new digital initiatives that incorporate AI-based predictive analytics designed to keep and strengthen customer engagement and loyalty. 

 

Financial services companies unable to reinvent themselves, adapt to new FinTech realities, and gain market share, will deteriorate and crumble. Sounds dire? Indeed, spurred by Amazon, Google, and countless cloud-based competitors, the name of the game in financial services, like every other e-commerce platform, is continuous revitalization of customer experiences.

Some banks, for example, will misread the challenge and try to put points on the customer experience/technology scoreboard with initiatives like the one UBS is doing where they are staffing bank branches with humanoid robots (named Pepper) that dance, chat and joke with customers. Perhaps UBS knows that it might not be able to adjust fast or well enough to the digital experience revolution and hence made a deal with SoftBank Robotics to design Pepper. Cynically, perhaps, Pepper, the dancing robot, can be viewed a robotic device designed to buy corporate time for real digital transformation. 

All banks are hiring data scientists, software developers and, yes, a new high-tech breed named “experience design specialists” to become digital incubator centers rather than just plain “banks.” What all financial service companies are struggling with is the monster that they themselves created and now has gotten out of control: empowering customers. Now financial services companies are harnessing AI and machine learning to reverse the power shift to customers by targeting their preferences, behaviors and emotions (think “facial expressions”) so as to influence and shape their financial and other purchase decisions. 

In perspective, all of these financial institutions are directly and indirectly at war with the platforms and algorithms of Google, Amazon, and other tech giants. It is these algorithms that increasingly shape customer’s decisions, not brand marketing like in the good old days. It is algorithms that build customer relationships and differentiate brands. For customers distracted by endless ads, desperately seeking to remove their brains from digital streams of clutter, the answer is intelligent agents that can work on their behalf as they seek to avoid becoming merely a digital “customer acquisition” or candidates for another loyalty program.

At the same time that financial services companies are struggling with efforts to retain and acquire new customers with personalization initiatives, along comes one of the EU’s game-changers, GDPR, and the imperative to clean up their privacy protection safeguards. Just wait until one financial services company is caught in GDPR non-compliance and the entire industry will react with data privacy mortification. 

The digital reinvention of financial services will necessarily include blockchain applications. Blockchain startups are raising vast investments these days. Ho hum…another $40 million investment for blockchain R&D by a one- and two- year-old firm is almost daily news. Investors know that financial services companies (and lots of others) unquestionably need blockchain-based solutions to implement GDPR-compliant digital asset management. 

Then, at the very same time, along comes another EU game-changer for retail banking, innocuously named PSD2 (Revised Payment Service Directive), that significantly reduces banks’ monopoly on their customer’s account information. PSD2 allows customers to choose Google or any bona fide third-party (even Facebook) to manage their banking needs. 

Many European financial firms have spent more than a year preparing for PSD2 which will ripple across the globe. P2DS is yet another force bringing financial institutions and fintechs closer together to bring cutting-edge technology into banking and accelerate the speed of innovation as artificial intelligence takes over the world.

As all of these trends work their way through the financial services industry, along comes advanced versions of AI that use conversational interfaces to create new products, services, operational models, new kinds of digital echosystems, and even markets. And in all likelihood, the underpinning of all these innovative new platform and ecosystem strategies will be blockchain, especially as a deterrent to growing cybersecurity threats. 

For business leaders in financial services battling hackers as they strive to significantly improve customer experiences this certainly adds up to a very challenging prospect. But they have no choice other than to respond boldly to meet the future demands of the fintech revolution.