Banks Should Be Optimistic About Their Fintech Future
If you want to feel old, reflect on a few facts about this year's crop of high school graduates. Many of them were born the year that the first "Star Wars" prequel came out. The iPhone launched the smartphone revolution when they were nine years old. Two-thirds prefer texting to making a phone call. When they became eligible to join Facebook, the social network already had 750 million users. When they were 10, the nation's housing market cratered and many communities saw massive losses in home values.
The rising generations — the tail end of the millennials, and behind them Generation Z — have been shaped by remarkable advances in digital consumer technology, ubiquitous cellphone data and Wi-Fi, and major financial dislocation followed by nearly a decade of sluggish economic growth.
And while the digital revolution is often described in the media as a phenomenon of the young, it's reshaping the lives of all generations. For example, figures from the Federal Reserve show that older generations are rapidly catching up to millennials in use of mobile banking. Fintech businesses — banks and nonbanks alike — are rapidly deploying new technologies and apps that improve the financial experience, from peer-to-peer payments to loan applications to alternative underwriting.
One can look at all this change and prophesy doom and gloom for the existing banking sector. And some do — often consultants with something to sell. I'm much more optimistic that the banking industry will build on our centuries-old history of innovation and successfully meet the customers of the future with the technologies of the future. However, the challenges posed by nonbank fintech firms and by generational change are real. No bank should write them off.
The American Bankers Association has been out front to help banks navigate these changes, and we've recently expanded our commitment to members in this area. While we have long been involved in conversations about fintech and millennials, I recently convened two high-level staff task forces — made up of our fintech experts and future industry leaders — to bring together our work on these critical topics and make recommendations that can benefit the entire industry. These teams have been at work for several months, helping ABA reimagine our role helping banks connect with millennials and fintech, and will make their first recommendations later this year.
What we've learned is that millennials are not disenchanted with banks. Instead, most are simply not ready for the kinds of traditional financial products that are driven by relationships, such as mortgages, personal loans and wealth management.
For a variety of reasons, millennials are hitting key financial milestones such as homeownership later than previous generations. This has a lot to do with higher levels of student debt, delayed marriage and a weak jobs recovery.
Millennials are hitting these milestones later in life, which delays the discussions with banks that traditionally happened at that time. But they crave that bank relationship all the same. For example, more than half of millennials rely most on their bank — either online or in-person — for advice about buying a home.
Today, many banks offer personal financial management and budgeting tools that sync with mobile and online banking platforms and aggregate information across different accounts. One in three millennials use these budgeting services, and two-thirds expect these tools from their banks. In a world full of questionable financial advice, more than half of millennials want proactive insights from their banks on their spending and saving habits.
We also know that banks were fintech before fintech was cool. Traditional financial institutions use sophisticated technology to deliver banking products and services wherever, whenever. Examples include mobile check deposits, personal budgeting tools or the five-minute "Express Business Loan" application recently launched by Boston-based Eastern Bank. Banks invest billions of dollars in technology that keeps customer accounts safe and makes it easier for customers to conduct business where and when they want it.
Borrowers are better served when fintech players, banks and nonbanks alike, partner to leverage each other's strengths. Many nonbank fintech firms have developed fast loan application systems powered by underwriting algorithms that render near-instant approvals. Banks are moving toward faster approval as well and building partnerships to deliver capital and credit to those who need it. Staying ahead of customers' needs is a business imperative that they feel every day.
I am excited about what the future holds for the banking industry if we continue to work together, face change boldly and keep customers front and center.
Rob Nichols is president and chief executive of the American Bankers Association.