Tom Davis
ORLANDO—Are consumers ready to “unbundle” their financial services relationships?
One analyst thinks so, and says the reason is not only the fintechs but a growing change in consumer behavior.
CSCU Chief Technology Officer Tom Davis warned those attending the company’s Solutions 2016 annual conference that fintechs “are breaking your business into pieces,” collectively chipping away at many financial institution offerings, each focusing on one aspect of banking and doing it well.
He cited an important advantage fintechs have over banks and credit unions is that they are nimble and can take great risks since often a huge amount of money is not at stake if the startup fails.
“They are quick, unlike financial institutions,” said Davis. “They have a short development window and are laser focused. They do things well at a low cost and the give the product to consumers at a reduced price.”
Record Financing
At the same time fintechs are gaining record financing support, according to recent reports, digital transactions are outnumbering in-branch transactions. Along with that, a growing number of consumers are of the mindset to “cut the cable,” moving away from services such as the traditional cable provider in favor of Netflix, said Davis. He noted, too, that many younger adults can now get by with Zipcars instead of owning a vehicle.
“As for financial services, more people are saying I just need a checking account, a direct deposit account, and a way to access them,” said Davis
Davis acknowledged that the lack of regulatory oversight for fintechs is typically an advantage, he added that not being regulated also does not permit the startups to act and perform like a credit union or a bank.
“They also have a scale issue,” he said. “For every Uber that makes it there are a bunch of Ubers that did not.”
Davis said all of this leaves fintechs and financial institutions with many decisions to make about the future.
“Fintechs can stand alone and try to make it on their own, they can try to make a deal with you, and they can be bought out by some big banks,” said Davis, noting that all of those things are happening.
Time To Partner?
But Davis asked the audience to imagine the power of partnering with a nimble fintech.
“Imagine their technology being your members’ user experience,” said Davis, who emphasized how long it can take a credit union or bank to develop a new product or service delivery method and how quickly the startups can move.
Are fintechs friends or foes, asked Davis.
“Do we develop a new digital strategy and wrap it around our legacy platforms? That is not easy. Do we replace our legacy platforms? Or do we aggregate the best of breed of these fintechs and partner with them?”