The CEO of Chime, the U.S. technology neobank company that provides fee-free financial services through a mobile app, just a week or so ago had this to say about traditional banks in an article on cnbc.com: “COVID-19 and the pandemic have just accelerated the trend that was already in motion. There’s an increasing willingness to provide and manage your finances through a mobile app. Particularly for the younger generation, the notion of going in to fill out forms, to get basic financial services is really becoming a relic of the past.”
Which begs the question, if you’re a community bank, what will your community look like in the not-too-distant future?
By that I mean, is the online community all that’s left for banks? Individuals who seem willing to trade personal data for convenience? Those who would prefer to never consult with a human being, an expert, when it comes to managing one of the most important and difficult areas of their lives? Their finances?
Personally, I believe there is still a place for that “off-line” community… the one surrounding your branch locations, the one that consists of individuals and local businesses who are connected with each other and value that connection.
But, hey, what do I know? Seems like every time you open a news page in your browser there’s some article about digital transformation, monetizing data, turning branch banks into internet cafes… is that really where we’re headed? And, should we?
Granted, I wholeheartedly agree with Mr. Britt, Chine CEO, that “the pandemic has just accelerated the trend that was already in motion.” This finextra article from just the other day included this proclamation from Paul Walker, GM of Q2 BaaS. “Now any bank can have its own Marcus or Chime in a matter of a few weeks.” Wow, the race to trade one community for the other is really is running full steam ahead.
Further proof is a recent Financial Brand blog about digital banking insights that can be learned from China’s We Bank. The Shenzen-based, digital-only bank has experienced exponential growth since its inception in 2015. How? The cynic might ask this question: Could it be that they are raking in cash not because of a digital banking model worth emulating but, instead, a model that allows them to monetize data and loan money to high-risk individuals without fear of running afoul of regulatory agencies?
Case in point. We Bank has built a business of over 200 million customers by opening accounts with an average revenue per user of around $10 USD. Their per-account operation cost is only 3.6 RMB, or roughly $.50 USD. And, they can process a loan application in just 5 seconds. 5 seconds! How is that possible? Henry Ma, CIO explains it so: “We work with a lot of internet platforms. Essentially, we embed our financial products into our partner platforms. And we also work with our partner platforms and leverage the data and the user base that they have and do a lot of pre-underwriting on the users. When we work with a particular platform, the user will get pre-underwritten and receive an invitation from us. Once the user accepts the invitation, we have already gotten some idea of what kind of a credit worthiness this user deserves.”
“We leverage the data and the user base and do a lot of pre-underwriting…” Hmmm. Where does this data to which Mr. Ma refers come from? Sounds to me a like it might be Big Brother Banking, where your bank, in bed with Big Data Bad Boy, knows everything about you and then uses that information to sell their products (which of course, are products that create the revenue they didn’t generate when they sucked you in with a bait-and-switch offer.)
If this sounds a bit skeptical and cynical that’s because, frankly, it is.
Back to the original point here. What “community” are digital banks serving and do our true, traditional, local community banks want to go there? The pandemic may have accelerated the digital banking trend, but that doesn’t necessarily signal progress or a direction in which banks need to necessarily go. People need community and connections. Yes, they want convenience, but once this pandemic is behind us, will those digital customers still feel the same way? Perhaps, but perhaps not. I could see the pendulum swinging back the other way with a re-birth of the branch bank.
And why not? E-tailers are doing it. In “Why are Online Retailers adding Brick and Mortar Stores?” DeFi Nucleus Vision says, “Online shopping lacks human interactions. Customers don’t get a chance to ask in-store stylists for advice, it’s a solitary experience and customizations aren’t as easy to organize. Having a salesperson who greets you, tells you what looks good on you, gives you the right size, and offers a better color scheme can help brands build a deeper connection with the customer.” A “deeper connection.” That sounds a lot like community banking to me.
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