The successful digital bank offers more than banking cloaked in an online wrapper.
Treasury Prime Vice President of Banking Jeff Nowicki, Emprise Bank Senior VP of Innovation and Development Emily Reisig and Zeta CEO Aditi Shekar told PYMNTS that the branchless approach has the potential to open up new opportunities to both traditional banks and FinTechs.
But to get there, providers need to understand the changing needs and desires of their targeted, tech-savvy — and younger — customers.
PYMNTS’ own studies show that a majority of consumers love digital banking features and are happy using digital banks and FinTechs. But fewer than 10% use them as their primary account.
Shekar noted that — with a nod to the millennials out there that opt to interact with their financial services providers online — “our generation has evolved as a digitally native generation.” And as those consumers get older, the expectations of every aspect of lives, banking included, are that the experiences will be “upgraded” to be increasingly available online.
As so much of life is shifted online, Shekar said, “community is not going to be about where you live — it’s going to be about who you like to talk to and who you like to spend your time with online.”
The pressure is on, then, for the banks to upgrade their digital offerings, too, enabling a seamless flow of money movement. To do so, financial institutions (FI) and FinTechs both need to understand the very real shifts happening in the households they seek to serve more adroitly.
We’re no longer in what Shekar termed “single payer mode,” where one person earns the money and spends it. The millennial generation, she remarked, is typically marked by dual income households, and younger consumers neither earn nor manage spend — or even share it — the same way as their parents.
Emprise Bank’s Reisig remarked that “there’s the pressures of technology and of innovation — the technology experiences become the new expectation of our customers.”
Linking Banks and FinTechs
In the past, said panelists, banks may have eyed FinTechs with suspicion, and consumer FinTechs may have sought to build everything in house, or eyed banking charters as a key way to create the digital bank of the future.
But Reisig said there’s room for a partnership model where FinTechs can innovate, create delightful experiences and solve frictions inherent in the digital channels emerging in financial services. Banks like Emprise, she said, can be a supportive banking partner, bringing their knowledge and expertise to bear on all manner of critical banking products.
The banks and FinTechs need a bit of connective tissue to tie their respective strengths together, Nowicki said, who added that providers including Treasury Prime can help connect the two sides of that digital banking equation. The banks, he said, bring their strengths in risk management and regulatory compliance to the table, as purely digital relationships continue to be forged between consumers and banking entities.
“It’s important for the banks that are entering into [the digital banking] space,” he said, “to keep control of certain aspects of the programs and of the relationships.” For the FinTechs, said Shekar, there’s the advantage of not having to build deep integrations with each and every bank partner.
As she noted, “I am not a compliance expert — I’m a software builder, and I like the ability to stay in my lane while still leveraging the capabilities of a bank partner and Treasury Prime at the same time.”
The partnerships, the panelists told PYMNTS, are critical, because there is still a way to go in the evolution of the digital bank. Nowicki predicted that in the years ahead, we’ll see more specialization as providers add more services. All manner of providers, Reisig said, have the opportunity to build up specific customer bases and maintain wallet share.
And as the digital bank continues to evolve there will be the opportunity to become consumers’ primary banks.
“The uptick for making the digital bank the primary bank is in solving some edge cases,” for innovating interactions that have typically involved cashier’s checks and even access to cash. Shekar observed that FinTech 1.0 had traditionally been unable to solve for “last mile” delivery of financial services. But now with the development of infrastructure and partnerships, there’s the ability to, for example, pay for large-ticket items like cars through the use of apps (eschewing the cashier’s check).
Against that backdrop, Nowicki said, embedded finance represents an enormous opportunity for consumers and businesses who want to bank where they are — and for the FIs and FinTechs that seek to serve them. Embedded finance, Reisig said, represents far more than just a neobank sponsorship opportunity. Banks and FinTechs, Nowicki offered, will look to consumers through nontraditional products (such as small business microloans), as application programming interfaces make data access easier.
“It’s embedded banking in multiple places and digital experiences and throughout the customers’ daily lives,” she said, to which Nowicki observed about the rise of the digital bank: “It’s not necessarily reinventing the wheel, it’s reinventing the user experience.”