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Relations between banks and providers of personal financial management tools have soured of late amid reports that some banks block PFM sites' access to their customers' information during peak traffic periods. Aggregators say they are working to address banks' concerns, but they also are urging banks to invest in more server capacity to keep pace with customer demand.
December 31 -
Innovations in payments and e-commerce are just getting started. The world of "New Finance" is one of endless possibilities.
December 29 -
Any company with committed leadership can deliver experiences that create value for customers, colleagues and shareholders, if they adopt these management practices, write Robert Schiff and Victor Liu.
June 25
At the start of 2015, there was a sense that Silicon Valley would soon rule the world of finance and that banks risked irrelevance. A year later, a more balanced picture has emerged.
In the January 2015 Ideas Issue of American Banker Magazine, we described in an article titled
These forces include: advances in analytics that have helped financial firms better track trends and understand consumer behavior; rapidly improving digital technology; increased emphasis on financial health and financial inclusion; and the expectation from consumers that their financial providers deliver much better experiences, on par with what they get from the likes of Apple and Uber. We also considered whether incumbent banks might be pushed toward the role of commoditized utility while innovation and high-value customer relationships were claimed by technology-enabled disruptors.
As it turned out, the overriding theme in 2015 was collaboration.
Technology companies continue to act as pioneers. They take advantage of their lower costs, decision-making and technological agility, higher risk tolerance, and access to talent to shape and respond to shifting customer needs. In turn, banks are proving to be effective engines of scale for New Finance through partnership, acquisition and replication. They are doing so by drawing on natural advantages — lower cost of capital, risk management capabilities, known (if not always loved) brands, and the reassurance of physical bank branches.
Indeed, some of the largest players in fintech are partnering with incumbent banks. Lending Club is helping
In other instances, financial institutions are scaling New Finance through acquisition. Northwestern Mutual bought
Tech companies are also pioneering ideas that are quickly becoming industry standards. For example,
What does this all mean for New Finance in 2016?
First, banks need to continue to improve the experiences they deliver. Today's leading banks will likely be the primary providers for some time to come, even as new entrants continue to push the frontier of innovation. Unfortunately, the top four U.S. banks are among the top 10
While some startups will achieve scale on their own, many more will only achieve meaningful reach once they find a way to work with incumbents.
Second, customers need more help in making good financial decisions. In McGraw Hill's latest
Third, we need new financial products to solve some of today's biggest challenges. Americans take too few good risks and manage bad risks badly. For example, Americans started
Banks' embrace of New Finance means great ideas may reach millions, if not billions, of consumers more quickly. But it is highly unlikely that banks can realize New Finance's potential without working hand-in-hand with disruptors. Regulatory, efficiency and near-term growth pressures make it hard to ask banks to deliver boundary-pushing research and development completely on their own.
Paul Breloff is the managing director at Accion Venture Lab, which provides seed capital to startups that improve underserved consumers' access to financial services. Robert Schiff is a vice president and general manager at Medallia, the global SaaS-based customer experience technology company.
