“Alexa, Move My Money,” and Other Ways Fintechs Can Save Banks
In this first article for Talks With, Archie talked with Poorani Jeyasekar, a Fintech Partner at Celerity, a business and technology consultancy based in McLean, Va. She helps financial services companies lead transformative growth, often through partnering with fintechs. Poorani explains the diverse beliefs of banking consumers across generations and how fintechs can persuade banks and credit unions to use their digital offerings to find and nurture customers and build their brand. This conversation has been edited.
Archie: What’s the strategy behind some of the bigger banks routinely investing in or partnering with fintechs?
Poorani Jeyasekar, Fintech Partner, Celerity
Poorani: The larger consumer banking institutions and financial institutions with more than $50 billion worth of assets such as Chase, Wells Fargo, Citibank, Capital One have all done a great job of building capabilities through private equity funds, acquisitions, and partnerships with fintech firms. The larger financial institutions can just really come in with the money to throw at the various startups and hedge that a few of them will be great bets. You often hear Jamie Dimon making brazen statements about bitcoin and crypto in general—quite negative in fact—to get media attention, but JPMorgan Chase is underwriting a lot of these crypto companies. So those comments don’t stop them from investing in crypto firms or offering it as part of a portfolio to clients. As a strategy, they are thinking about the future and managing their risk.
Archie: In the eyes of Gen Z and Gen Alpha, what is a bank?
Poorani: The concept of a bank for a current 12- or 13-year-old is going to be very different than how you and I always thought of it. Their thinking is going to be along the lines of, ‘I don’t need to have a relationship with a big bank like my parents used to have.’ They want banking on their phone, a touch screen, as an app, and want it to be conversational. If you don’t offer it the way they like, they will easily switch. Gen Y and Gen Z want to tell Alexa to transfer money from A to B and want Alexa to be able to tell them the most efficient and effective way to do this. The definition of a bank, to them, is an app that satisfies their financial needs in an easy and simple manner and at the same time provides safety. These bigger financial institutions fear companies like Apple, Facebook and even communication firms like Verizon, which are all becoming banks in some way in offering tech-driven financial services. Even Walgreens and Albertsons are introducing apps that have them pivoting to becoming bank-like for their consumers.
Archie: How are younger generations changing the rules of finance?
Poorani: Gen Y and Gen Z are increasingly more concerned about causes, which could be something like climate change, but can also be focused on financial wellbeing and financial literacy for all. They will be more discerning in terms of questioning how the world and society work with traditional banks. They will ask, ‘Why do we have to show all this information to get a home loan?’
All these rules that are instigated previously and they are expected to play by—credit scores of 700, for example. I don’t think that Gen Y and Gen Z are wanting to play by these rules. The existing systems are further driving inequality and the younger financial consumers are questioning the system and they will change it. There’s also greater awareness of how inequality is driven by one’s relationships to technology and financial illiteracy.
Archie: How can fintechs appeal to smaller banks and credit unions with a more traditional customer base?
Poorani: Fintechs can create services for specific demographics of a particular smaller-sized bank or credit union. From a legacy bank’s perspective, the customer is already with you; they don’t want to change their bank. But from a small bank’s perspective, you need to sustain the relationship with your customers and make the experience better. A greater proportion of their customer base falls under the ‘digital immigrants’ category, or people who are new to technology. They use email, but are not really up to full speed in knowing how to use a phone for banking or for basic financial transactions. They just want things to work.
Credit unions and community banks might try to work with a fintech startup to bring in a loan origination platform or loan-closing platform. That’s where tech companies have a leg up as they are all sitting on a lot of data and have far more research on behavioral science. They can capitalize on that for each of these specific demographics. Fintechs can help these banks to figure it out, which is a huge win-win.
Archie: What’s stopping financial institutions from going all in with fintechs?
Poorani: A challenge in part of the initial conversation is that a fintech can come in speaking almost a different language to the smaller banking client. The two parties need to find a happy medium to work with each other and need to have a better understanding of what market or customer segment the bank or credit union is really going after.
The smaller banks or credit unions don’t have the infrastructure to scale up quickly and are making investments in a critical fashion, so fintechs need to figure out how their new applications can work with existing or legacy applications. The lighter the lift, the better it is. Banks and credit unions are going to say ‘Yes’ to partnerships where fintechs can show them it’s worth their investment and easy to integrate with their existing ecosystem.
Archie: What’s an example of fintechs using their data and research to help banks understand and better serve their customers?
Poorani: Fintechs can take a deeper dive on how and why a bank’s customer thinks and purchases. I don’t know if traditional financial institutions have capitalized enough on design thinking, human psychology, or behavioral science to the full effect for their customer strategies. Many fintechs excel in user research and design-centered thinking that can help banks analyze how today’s consumers will engage with financial services. There is a segregation of needs between older generations of consumers, who are digital immigrants, versus the younger generations, who are digital natives. Digital immigrants are looking for psychological safety and trust with simplicity. They have more to lose financially because of where they are in their life journey. Financial institutions really need to know how to create the sense of psychological safety, build trust and not treat their customers like a number.
Archie: Banks are increasingly focused on financial inclusion after Covid-19 and Black Lives Matter. What role do you see fintechs playing?
Poorani: Financial inclusion really matters to the blue-collar population that is not equipped with the right knowledge or solutions when it comes to borrowing for emergency purposes or lending for a need. Fintechs have the ability to provide better solutions to improve inclusion through alternative credit data models, increasing awareness about financial literacy and habits, and empowering consumers with data and tactics to make better financial decisions. Taking a stand for financial inclusion and awareness is also going to help fintechs win over the Gen Y and Gen Z population.