FinTech Startups Can Make Banking Stronger
The banking sector should look to Silicon Valley and client-focused companies as inspiration for deep change, says Urs Rohner, chairman of Credit Suisse.
Disruptive innovation, which has seen some industries transformed by externally driven advances, has been less visible in the banking sector, said Credit Suisse Chairman Urs Rohner, speaking at a Distinguished Speaker Seminar at the Saïd Business School of the University of Oxford. He added that sector transformation will still come but will instead be client driven.
Rohner said innovations in financial technology have only addressed parts of the value chain, such as payments and lending – where concepts such as crowd-funding have gained ground. "Fintech is probably more about construction than disruption … if fintech companies are fast enough to team up, a lot of back-office 'disruption' can provide services that incumbent firms can use," added Rohner. Therefore, he said, many fintech innovators would have a hard time being successful on their own "To produce the growth they need, their best chance is to enter a joint venture or other sort of collaboration with a large incumbent firm."
Banking however, Rohner added, is more than individual parts of the value chain. Clients will not pay for information if they get it for free elsewhere. What they are willing to pay for is added value. "Advice adds value; it has to do with judgment and absorbing a lot of information to reach the right conclusions," said Rohner. "Fintech companies can help with feeding and processing data but in the end, it will always come down to making judgment calls and decisions."
So, although challenger firms are creating some changes in parts of the value chain and perhaps prompting banks to look at technology as a means of doing things "cheaper, faster, and better", this will not be the cause of fundamental change, said Rohner.
Advice, Judgment and Trust
Instead, changes in the banking business model will be demand-driven, above all by changes in client behavior and expectations. Increasing transparency and comparability – in financial services as well as everywhere else – will mean that clients will judge services more critically than before. A wide range of information previously provided by banks will be available quickly and at nearly no cost. In this environment, what value can banks provide?
According to Rohner, it will all about adding value through advice, judgment and trust. "Fintech companies can provide smart data ‒ but value comes with the knowledge that allows someone to pull the data together, interpret it, and make judgment calls and decisions. Being able to provide this level of advice will depend on individual expertise and a high level of trust."
The concept of trust will further increase in value, Rohner added, in the digitalized world.
The requirements of relationship managers will also change significantly, he said. "Overall, services and financial advice will have to be put on a new footing," he said, adding that the secret will be no longer looking solely at client demands but rather looking at future demands and anticipating clients' needs.
That is why, Rohner said, the banking sector should be looking to Silicon Valley and companies focusing and preempting their customers' needs.
Gaming applications, he added, could also provide the basis of smart ways to educate clients about issues such as risk awareness. "We will have to try them out," he said. "Some of them will work. I am sure that some of the ideas will not and that we will have to change them. We will have to increase and intensify the feedback route – but that is something that we will be able to do in this environment, in a way that we could not have done before."