The fintech industry's early rallying cry was to establish their business at the expense of traditional financial market players. Why this has proved too big a challenge for many has to do with something rather elementary, a new study shows.
The disruption, a buzzword for what fintech pioneers were all about, was cancelled: the conclusion drawn by finews.com last year describe a change of direction within a fledgling industry. Large corporations have taken the initiative and successful startups are those who seek refuge under the wings of a bank or insurer.
Cooperation, not disruption is what digitization of the finance industry is all about.
It's All About Clients
This is a victory for the established players, who haven’t been muscled out of their business by a young and vibrant tech industry. And the reason behind this evolution has a lot to do with what large corporations have aplenty: clients.
A new study by EY consultants and the University of St. Gallen (HSG) puts it pointedly: trust is the currency of the financial market. He who gains trust will attract customers and dominate his business segment. The analysis is based on discussions with twelve experts at Swiss financial firms and fintech companies. A survey of 400 Swiss consumers further contributed to the findings.
Advantage of Trust
Long-established companies have an advantage of trust ahead of the startups simply because of their public profile and reputation. The study authors quantified this phenomenon with a 9 percent advantage in trust over their new rivals.
A further decisive factor in favor of the established players is their network of branches, putting them in close touch with their clientele. One of the surprising conclusions of the authors is that the face-to-face contact with customers remains a key to a successful business, even in the digital age.
Non-Human Communication Remains Awkward
Organizations, which provide opportunities to speak to representatives in person enjoy a level of trust that is 34 percent higher compared to those firms which don’t offer that option, experiments showed. The building of a bond of trust through the personal contact seems particularly important after the initial opening of a business relationship, in other words in the user phase.
The study authors aren’t alone in coming to this conclusion. A more broadly based study by ZHAW university in cooperation with Pidas consultants recently concluded that a lot of clients are sceptical about communication channels through non-human partners, for instance chatbots. They also found that a good customer service was more important than the price of the good.
Beware of Branch Closures
To gain market share, startups have to get closer to their prospective customers, according to the recommendations by EY and HSG. Well-working digital channels don’t guarantee volume. Startups in general stand a good chance if their innovation creates a real added value for customers and if the company provides for face-to-face contacts after the initial purchase phase, the study concluded.
The consultants therefore warn banks and insurers to simply give up their physical presence and to reduce the opportunities for personal contacts: branch closures and the reduction of the sales force signifies a clear shift away from the customer, they said.
Company executives who periodically threaten with the branch closures are in danger of scoring an own goal.
