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Who’s Afraid of the Big Bad FinTechs? A Powerful Value Proposition Can Calm the Fear

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A lot of financial institutions are concerned about the competition brought by FinTechs that seem to be rewriting the script for how financial business gets done. How can a credit union without a tremendous development budget hope to compete with their slick technology? The concern is well-placed, but perhaps, not for the right reasons.

Yes, FinTechs have advanced technology and they are capturing significant market share, but the financial services industry isn’t really competing with their technology; it’s competing with new customer expectations. Remember when mail order meant filling out a paper form, mailing it, and waiting 6 to 8 weeks? People were content with it because that’s what they expected and they did not know anything different was possible. Fast forward to today; thanks to players like Amazon, customers now expect delivery in a few days, even as quick as one hour in some cases.

What the FinTechs have done is change how people expect to do business. Now that they know it is possible to have a much faster and simpler banking experience, there is no going back. We can never go back to 6 to 8 week mail order deliveries, even if Amazon goes away tomorrow. And if today’s FinTechs don’t survive, customer expectations are still forever changed.

So are faster and simpler processes a requirement for most people? Yes. Does that mean you need to look like a FinTech? That depends on your value proposition. If a FinTech’s value proposition is the ability to get a loan in pajamas, quickly, without talking to anyone, what is your value proposition? There’s room in the marketplace for more than one. If your value proposition is very low loan rates, helping people with credit issues, or building strong relationships, focus on delivering that flawlessly. If it is clear and powerful enough to truly resonate with your target market (and that target market is big enough to sustain the organization), you shouldn’t feel the need to copy the FinTechs; own your value proposition.

At the same time, you will still have to respond to those changes in member expectations; the questions are how and when. Most of that leading-edge technology is available today – for a price. Going back to the shipping example, there are plenty of successful online retailers that do not offer 2-day deliveries as a standard, but very few are in the 6 to 8 week range. Using your value proposition as a filter will result in a more strategic allocation of resources by choosing the right offerings to meet your unique membership’s expectations and support your value proposition.

Remaining relevant to your membership requires thoughtful adjustment as the world around us changes, but the key is to have a clear, powerful value proposition – and deliver on it.

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FinTech Lending – Don’t wait for strategic planning to have this strategic discussion

While some FinTech lenders may be struggling, credit unions should not assume the threats are going away.

FinTech lenders have taken a huge bite out of the lending pie.  Consider the following:

FinTech Table

It is no secret that FinTech lenders have recently taken a big hit.  However, even if Lending Club, Prosper, or OnDeck are not long-term survivors, the value proposition they championed will likely be carried on and taken to a higher level by other FinTech companies, banks, or credit unions.  The largest banks in the United States are paying attention to the trends.

In a recent interview, the CEO of JPMorgan noted that while there is nothing “mystical” about what marketplace lenders are doing, they are filling a fast-growing niche, and have effectively reduced the “pain points” for consumers seeking to borrow and invest.

Credit unions should proactively engage in strategic discussions around the implications, good and bad, of FinTech lenders. Consider questions such as:

  • What is driving consumers to online lenders?
  • What can your credit union do to ease your members’ pain points when it comes to the loan application and funding processes?
    • For many consumers, a big pain point is speed. Another is mountains of paperwork and documents to sign. Some marketplace lenders have very short applications and can decision loans within minutes, not hours or days, while having much faster funding
  • Or perhaps it’s privacy? Chatting with someone online can have a different feeling than sharing sensitive financial data in a face-to-face setting
  • What does your credit union need to do today, to ensure relevancy and sustainability, as the competitive environment changes at lightning speed?

These are just a few of the many questions that should be asked during strategy discussions.  While in this blog the focus was on loans, don’t forget there are many strategic disruptors in the world of payments.