Financial services will find customers - not vice versa

Rakefet Russak-Aminoach Photo: Ron Kedmi
Rakefet Russak-Aminoach Photo: Ron Kedmi

The financial technology revolution is centered around providing financial services on platforms that customers are already using. Fintechs are key to making this happen, explains Rakefet Russak-Aminoach.

Anyone familiar with the world of banking knows how challenging it is to persuade a customer to change banks - breaking old habits is indeed mentally difficult. But what if clients could access banking services in a different way: on the website where they shop for clothes, for example, or in the supermarket they frequent on a weekly basis?

Over the last decade, traditional banks have made great strides by moving into digital banking, enabling them to lower fees and focus more on accessibility and convenience. In parallel, over the last few years - the Covid years - we have witnessed explosive growth in the fintech industry, where companies leveraging innovative technologies are providing highly tailored banking services. For example, in the US today there are successful niche banks that specialize in financial services for doctors, the LGBT community, and even ex-convicts. Nevertheless, there is a high barrier to customer acquisition in the world of financial services. Customer acquisition costs are exceptionally high and it takes a long time to onboard new clients - especially for newcomers that lack a reputation in the financial services sector.

Today the financial industry is gearing up for a new paradigm: the integration of financial services into popular platforms where customers are already active (Embedded Fintech). In this model, there is a unique opportunity for non-financial companies to incorporate financial services into their offerings. Doing so improves user experience, keeps customers engaged in their ecosystem, and helps to drive profits. For instance, by embedding payment functionality into platforms, companies like Uber or Airbnb can facilitate in-app transactions and spare customers from having to exit the app in order to pay for a ride or rent an apartment. Alternatively, companies could offer other integrated financial services like credit or insurance at the point of sale. In brief, it makes sense to provide financial services to customers on the platforms they are already using.

Shopify is an excellent example of a company that’s gone all-in on embedded finance. The e-commerce vendor platform is now providing customers with a range of solutions to secure loans and accept digital payments (Shopify Capital, Shopify Payments). The benefits to all stakeholders are clear: customers get to conveniently use financial services, and Shopify - which already owns meaningful insights about customers' financial behavior and their risk profile - is able to provide tailored financial products at a price point that’s commensurate with risk.

This new era of financial services could of course leverage the promise of open banking initiatives which empower customers to take ownership of the financial data that their banks hold. Through open banking, non-financial companies can gain greater access to prospective customers' financial history, enabling them to better assess risk.

Does the coinciding of these trends imply the downfall of traditional banks? I don't believe so. Banks that identify and seize the existing momentum today by providing more services that are enabled by fintech innovations, will likely continue to grow and prosper. The great advantage banks have is their enormous customer base, which is vital in the emerging financial landscape. Looking forward, fintech companies will pave the way for a more competitive and innovative finance industry that is defined by a model based on customer-centric financial services. Those smart enough to identify this trend on time - inside or outside the banking industry - will maintain relevance and accelerate their growth in the financial services sector for many years to come.

The author is Managing Partner at Team8 and former CEO of Leumi, Israel's largest bank

Published by Globes, Israel business news - - on March 31, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Rakefet Russak-Aminoach Photo: Ron Kedmi
Rakefet Russak-Aminoach Photo: Ron Kedmi
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