Financial institutions are falling behind the tech curve in meeting the demand of convenience consumers, leaving the door open for Big Tech companies like Apple, Amazon and Google to become our bankers. In November, Google redesigned its contactless payment service Google Pay, merging traditional banks’ services from the likes of Big Tech with seamless, convenient experience users.
But there is a catch.
Despite the wide smoke and mirrors imposed by Google, there is one fact: Google is an advertising company, representing 71% of its revenue sources in 2019.
What happens when an advertising company now wants to become our bank?
One must ask: what happens when an advertising company – equipped with terabytes of data points cut from our personal emails, location data, song preferences, and shopping lists – now wants to become our bank? The answer is potentially unstable, especially given the extraordinary neglect Big Tech has shown for user privacy, as seen here. And here. And here.
As the market is poked by yet another technocrat tent, this time in the heart of financial services, traditional banks that consumers and businesses once find themselves at the crossroads. To maintain market share, these institutions will need to continue investing in fintech, so that they can coincide with the convenience and privatization offered by new competitors while preserving trust and transparency.
Traditional banks miss the digital mark
Fintech has the ability to fundamentally transform financial institutions, make financial institutions (FIs) operate more efficiently and deliver a great user experience (UX).
But there is a digital lag that is holding FIs back, especially small community banks and credit unions. Many have long struggled to compete with the deep pockets of national banks and the technical experts of Nav and Challenger banks, such as Vero and Monzo. According to Accenture, after investing more than $ 1 trillion in new technology from 2016 to 2019, most banks globally have received no financial boost from digital transformation programs.
Never before has this difference become more prevalent than between epidemics as customers moved online en masse. According to Fidelity National Information Services (FIS), in April 2020, new mobile banking registrations grew by 200% and overall mobile banking traffic increased by 85%.
Data is a grand prize for Big Tech, not revenue from financial services
Naturally, Big Tech players have recognized the opportunity to enter financial services and flex their innovation muscles, giving banks and credit unions a tough run for their money. Consumers should take care to digitize their finances before breaking traditional banks and running into Big Tech’s arms.
It is important to note that payments and financial services for Big Tech players multiply the enterprise. For example, in-house payment capabilities will not provide additional revenue streams to companies focused on retail and commerce; This promises them more power and control over the shopping process.
Regulations in the United States may curb this attack to an extent, or at least limit the company’s ability to directly profit. Because let’s face it: Big Tech players are certainly not asking for the regulatory “stuff” that comes with a bank charter.
But tech companies do not need to directly benefit from offerings such as payments and money management, so until they can accumulate data. Tracking the way users spend offers companies significant ROI over the long term, informing them of how the user spends their money, if they have a mortgage, what credit cards they have, With whom they bank, with whom they transact, etc.
Financial behavior includes potentially highly personalized purchases, such as medications, insurance policies, and even engagement rings.
With this laser sharp view in the purse of consumers, imagine how much more valuable and influential Google’s advertising platform would be.
Banks should lead the charge in ethical data
When it comes to the digitization of financial services, the old saying “with great power comes great responsibility” comes true.
Customer data is an incredible tool whereby banks fulfill the possibility of falling on the financial spectrum to all consumers. For example, by analyzing the spending habits of customers, the bank can offer a tailored solution that helps them save, invest or spend money more wisely.
However, if being a subscriber of these services means that you are affected by ads that respond directly to your searches and purchases? Or, even more succinctly, what if your bank now knows you well that they can create a personality for you and predict your needs and desires even before you can? If you are a customer of Google, what does the future look like.
Using customer data to refine product offerings is not enough. This must be done in a way that ensures security and privacy. By using data to personalize services rather than behind the scenes revenue, banks can gain a deeper understanding and trust in consumer needs.
Trust can become the weapon that banks use to protect their throne, especially as consumers become more aware of how their data is being used and they rebel against it. A POMON study on privacy and security found that 86% of adults said they were “very concerned” about how Facebook and Google use their personal information.
In an environment where data collection is necessary but controversial, the main competitive advantage for banks lies in trust and transparency. A report by NCipher Security found that consumers still trust banks more than their personal information, as they do in other industries. According to PwC, at the same time, confidence for technology is declining, with 36% of consumers having less-than-comfortable sharing of information compared to a year ago.
Banks are in a prime position to lead the charge on the deployment of ethical data strategy and artificial intelligence (AI) technologies, while still requiring consumers. Doing so will help them gather data on Big Tech in the long term.
Looking ahead to customer-centric, win-win future
The financial services industry has reached a decisive crossroads, in which consumers are given the option to leave traditional banks and hand over their personal data to Big Tech conglomerates so that they can enjoy a digital experience, greater convenience and personalization.
Banks can still win back consumers if customers adopt a customer-centric approach to digitization.
While Big Tech collects consumer data to support its advertising revenue, banks can win consumers’ hearts by collecting data to drive personalization and better UX. This is especially true for local community banks and credit unions, as their high-touch approach to services has always been their core differentiator. Banks can gain market share and win customers’ hearts again by providing personal engagement, making data collection secure and transparent.
Big Tech has written the playbook for what not to do with our data, as well as how to create extraordinary experiences. Even if a bank lacks the technology expertise or deep pockets of Facebook, Google or Apple, it can partner with responsible fintechs who understand the delicate balance between ethical data usage and better UX.
When corrected, everyone wins.