Question

Explain how challenger banks including open banking, crowdfunding and robo advisors are transforming the experience of consumers worldwide from a FinTech perspective.

Answer 1

Challenger banks are smaller banks that offer services via an app or through their websites, allowing you to do all your banking digitally. If you need to do something that you'd normally visit a bank branch for, such as depositing a cheque, many challenger banks will allow you to use a Post Office. These new kids on the banking block are often also known as Fintech (Financial technology) companies. One of the big draws of challenger banks is that many of them offer services that high street banks don't, or are still developing. These include up-to-the-minute notifications on your spending, and budgeting tools. They also do away with fees such as charges on overseas spending.

Open banking is also known as "open bank data." Open banking is a banking practice that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs). Open banking will allow the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers. Open banking is becoming a major source of innovation that is poised to reshape the banking industry.

Under open banking, banks allow access and control of customers personal and financial data to third-party service providers, which are typically tech startups and online financial service vendors. Customers are normally required to grant some kind of consent to let the bank allow such access, such as checking a box on a terms-of-service screen in an online app. Third-party providers APIs can then use the customer's shared data (and data about the customer's financial counterparties). Uses might include comparing the customer's accounts and transaction history to a range of financial service options, aggregating data across participating financial institutions and customers to create marketing profiles, or making new transactions and account changes on the customer's behalf.   

Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together, with the potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners, relatives and venture capitalists.

Crowdfunding has created the opportunity for entrepreneurs to raise hundreds of thousands or millions of dollars from anyone with money to invest. Crowdfunding provides a forum to anyone with an idea to pitch it in front of waiting investors. One of the more amusing projects to receive funding was from an individual who wanted to create a new potato salad recipe. His fundraising goal was $10, but he raised more than $55,000 from 6,911 backers. Investors can select from hundreds of projects and invest as little as $10. Crowdfunding sites generate revenue from a percentage of the funds raised.

Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey and then uses the data to offer advice and automatically invest client assets. The best robo-advisors offer easy account setup, robust goal planning, account services, portfolio management, and security features, attentive customer service, comprehensive education, and low fees.

The advent of modern robo-advisors has completely changed that narrative by delivering the service straight to consumers. After a decade of development, robo-advisors are now capable of handling much more sophisticated tasks, such as tax-loss harvesting, investment selection, and retirement planning. The industry has experienced explosive growth as a result; client assets managed by robo-advisors hit $60 billion at year-end 2015 and are projected to reach US$2 trillion by 2020 and $7 trillion worldwide by 2025.

How Challenger Banks have tranformed customer experience:

1. You can do pretty much everything you already do, plus more

They might look a bit different, but challenger banks let us do all the things we’d expect. You can generally pay in physical cash, check your balance whenever you want, make online payments, and link up with your accounting software.

Extras can include low (or no!) monthly fees, helpful reminders, and really good currency exchange rates.

2. They’re usually a lot faster

Traditional banks have sped things up quite a bit, but challenger banks can often beat the clock. Some give you the tools to set up an account in 10 minutes. If you go with a high street bank, you could be waiting for your business credit card to arrive for up to a week.

3. Advanced Technology

You’ll have access to best-in-class financial technology. The Big Four banks are developing this kind of stuff too, but it usually takes them a lot longer. Challenger banks are defined by their techy features and can dodge the red tape.

4. You’ll be able to manage most things on your phone

Online banks let you manage your finances remotely. Not only will you never have to go into a physical bank, you probably won’t even need to go near your desktop to make payments and check balances.

5. You’ll be the first to benefit from all their innovations

Sticking with the banks we’ve used for decades can feel stable, but also a little bit samey. As challenger banks grow, you’ll continue to be at the forefront of all this fintech development.

Their innovation, and often quite fun working environment, means challenger banks are attracting more and more smarty pants graduates to their workforce. With all that brain power, we’re sure to see some impressive new features emerge every year.

Benfits of FinTech and how it has affected customer experience:

1. Faster Rate of Approval. FinTech has the potential to increase accessibility and greatly speed up the rate of approval for finance or insurance. In fact, in many situations, the application and approval process can be completed within 24 hours.

2. Greater Convenience. Many FinTech companies, such as Besure, make great use of mobile connectivity to enhance the efficiency and convenience of transactions. With consumers using smartphones and tablets to manage their finances, FinTech businesses can streamline their processes and provide a better customer experience.

3. More Personalized Service. FinTech firms not only enjoy lower operating costs, but they can more easily react to consumers’ individual needs because they have greater access to a range of information about them.

4. Advanced Security. Harnessing the latest mobile technologies has resulted in FinTech companies investing in major security to ensure consumer data is kept safe. A few of the latest security options used by such companies include biometric data and encryption.

6. Lower Costs. FinTech companies are able to give their consumers the advantage of lower premiums than those associated with traditional firms because they rid themselves of any brick and mortar costs such as rent, advertising, and salaries, and instead invest money in their clients.