How Technology is Redefining the Customer Relationship

You can visit a lot of banks and never see one that looks like this.

Located in Portland, Oregon’s trendy Pearl District, Simple is one of the leading firms at the intersection of banking and technology.

The design is consciously industrial. Bike racks crowd every nook and cranny. There’s a piano. A sunroom. A large meeting room stocked with healthy snacks. The atmosphere is casual, yet charged with energy. The employees wear t-shirts and jeans, roughly a third of them work at standing desks, and you can count the number of non-millennials on one hand.

It’s too early to predict how the fintech revolution will play out, but there’s no doubt that this is the front lines of finance. And as in any commercial battle, it’s first and foremost about capturing the hearts and minds of consumers.

A growing cast of companies has emerged to meet millennials where finance and technology converge.

Simple, which teamed up with Spanish banking giant Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) at the beginning of 2014, offers a personal checking account accessible online and through its mobile app that’s designed to help people save. It does so by giving customers the ability to create compartmentalized savings goals.

Let’s say you need $50,000 for a down payment on a house in 24 months. By entering this goal into your Simple account, it will automatically deduct $68.50 ($50,000 divided by 730 days) each day from your “Safe to Spend” figure, which is essentially a person’s checking account balance less previously earmarked money.

Another technology-driven financial firm, Moven, offers a similar service. Described as the “debit account that tracks your money for you,” its home screen shows how much a person has spent during a month compared to previous months. If you typically spend $2,000 by the middle of a month, but are currently at $2,250, Moven’s app lets you know with each successive transaction.

“We create value by helping people build better money habits,” Moven’s president and managing director Alex Sion says.

A third player in the rapidly expanding fintech space, Betterment, builds customer relationships from a different angle. It offers an automated investing service. Give it your money, tell it your goals, and Betterment’s algorithms implement a strategy tailored to your financial objectives.

According to Joe Ziemer, Betterment’s business development and communications lead, it began the year with $1 billion in assets under management and now has $2.1 billion from 85,000 customers.

Finally, a growing number of Internet-based lending marketplaces connect yield-hungry investors with people and businesses in need of funding.

The best known of the group, Lending Club, offers personal loans of up to $35,000 to consolidate debt, pay off credit card balances, and make home improvements. Businesses can borrow up to $300,000 in 1- to 5-year term loans.

Funding Circle does much the same thing, though it focuses solely on small businesses. “There’s a perception out there that everyone is efficiently banked,” says Funding Circle’s Albert Periu, “but that isn’t true.”

Beyond using technology to refine the banking experience, a common set of objectives motivates these companies. The first is their missionary-like zeal for the customer experience. Their vision is to seamlessly integrate financial services into people’s lives, to proactively help them spend less, save more, invest for retirement and acquire financing.

“We created a product that allows customers to take control of their financial lives,” says Simple’s Krista Berlincourt.

This is done using elegantly designed mobile and online products that simplify and reduce friction in the relationship between a financial services provider and its customers.

To this end, a universal obsession in the industry revolves around the onboarding experience. “The onboarding experience is the moment of truth,” says Alan Steinborn, CEO of online personal finance forum Real Money.

Lending Club claims you can “apply in under five minutes” and “get funded in a few days.” Betterment’s Ziemer says that it takes less than half the time to set up an account with Betterment than it does at a traditional brokerage.

Finally, these firms compete vigorously on cost, with many forgoing account and overdraft fees entirely. In this way, they’re not only driving down the price of financial products, they’re also more closely aligning their own incentives with those of their customers.

Fueling the fintech revolution is the fact those millennials—people born between 1981 and 2000—now make up the largest living generation in the United States labor force.

Millennials see things differently. They “use technology, collaboration and entrepreneurship to create, transform and reconstruct entire industries,” explains The Millennial Disruption Index, a survey of over 10,000 members of the generation. “As consumers, their expectations are radically different than any generation before them.”

To millennials, banks come across as inefficient and antiquated. Two years ago, 48 percent of the people surveyed for Accenture’s “North America Consumer Digital Banking Survey” said they would switch banks if their closest branch closed. Today, less than 20 percent of respondents said they would do so.

This doesn’t mean that millennials will render in-person branch banking obsolete. A 2014 survey by TD Bank found that while they bank more frequently online and on their mobile devices, 52 percent still visited a branch as frequently as they did in 2013, mostly to deposit or withdraw money. “Those who do their banking in a branch feel it is more secure and enjoy the in-person service,” the survey concluded.

Wells Fargo’s recently appointed chief data officer, A. Charles Thomas, makes a similar point, citing a Harvard Business Review study that identified “customer intimacy” as one of three “value disciplines” exhibited by long-time industry-leading companies.

The net result is that the personal element of branch banking, while still relevant and necessary to build and maintain customer relationships, is nevertheless taking a back seat to digital channels. For the first time in Accenture’s research, the firm found that “consumers rank good online banking services (38 percent) as the number one reason that they stay with their bank, ahead of branch locations and low fees, both at 28 percent.”

It’s for these reasons that many observers believe the banking industry is prone to disruption. According to The Millennial Disruption Index, in fact, banking is at the highest risk of disruption of the 15 industries examined by Viacom Media Networks for the survey.

Of the millennials queried, it found that:

Sixty-eight percent believe the way we access money will be totally different five years from now.

Nearly half think tech startups will overhaul the way banks work.

And 73 percent would be more excited about a new offering in financial services from companies like Google, Amazon and Apple, among others, than from their own bank.

This isn’t to say that younger Americans don’t trust banks. In fact, just the opposite is true. According to Accenture, “86 percent of consumers trust their bank over all other institutions to securely manage their personal data.”

It boils down instead to the simple reality that millennials are “genuinely digital first,” says Forrester Research Senior Analyst Peter Wannemacher.

More than 85 percent of America’s 77 million millennials own smartphones according to Nielsen. An estimated 72 percent have used mobile banking services within the past year, says Accenture. And, based on the latter’s research, approximately 94 percent of millennials are active users of online banking.

Banks need to think about the customer experience differently. Millennials, and increasingly people in older generations, want more than physical branches to deposit money and get a loan. They want digitally tailored solutions for their financial lives.