Banks are Competing on Convenience
When it comes to financial services the main benefit most fintech newcomers have over traditional banks and credit unions is convenience. While there have always been people willing to pay a higher price for more convenience, many are shocked to see how much some businesses are paying for a quick loan. It’s not a stretch to say some borrowers, with decent credit, are paying 15 percentage points more, to avoid the hassle and paperwork of a traditional loan. That’s money that could have been used to expand business further, hire people, buy inventory, and contribute more to the overall economy. This has become increasingly more common since the recession and now 22% of small business loan applications are going to “alternative lenders”, a term that barely existed a decade ago.
Mainstream lenders have taken note and are ready to make traditional banking less cumbersome, but that’s easier said than done for some. Large financial institutions have the capital to invest more heavily in technology to compete, but it can be a struggle for small to medium sized banks. The speed at which technology is changing is not something these community banks aren’t used to or equipped for. In these situations, finding a fintech company who wants to partner, rather than compete is critical.
Financial institutions that partner with fintech companies, like Mirador, are able to create a modern banking relationship in a more efficient way. The fintech company focuses on making a better process by removing the barriers created by forms and paperwork so the bank can concentrate on what they do best – helping people. It’s true that many actions one used to perform at a branch are being moved online and branches themselves are closing down, but it is incorrect to assume this means the desire for a human relationship when banking is diminishing. Most would agree when it comes to money, a very important and personal thing, even millennials want to communicate with a real person. It’s just how and when that is changing.
The recession created an environment ripe for alternative lenders and online payment sites to grow, but their success was a wake up call for traditional financial institutions. Banks are changing their strategy to cater to the next generation. While some like to talk about how banks are on a path to extinction, that’s just not that case. In fact, a study conducted by CGC Catalyst found that almost 90 percent of people who are 18-35 years old have a financial services relationship with a bank or credit union and less than 4 percent use an online bank only.
Banks that provide the convenience and human connection people desire with likely thrive. This is true for smaller banks, which serve an important role in the community, as well. They too can incorporate the technology necessary to serve the next generation, but they may need to partner to compete. While disrupters of traditional financial channels are exciting and fast, banks are familiar which might just be more important when someone is deciding where to trust their money, especially if banks can incorporate speed as well.