But perhaps more interesting was what the conference lacked: fresh ideas and product propositions from incumbents.
Financial institutions’ long-held fears of increasing competition from big tech are now becoming a reality. And in this new paradigm, banks that fail to operate like tech companies risk becoming irrelevant, even though they may still own the “banking pipes” and provide banking-as-a-service type offerings.
As a recent McKinsey report stated, whereas fintech startups have “brought innovation and operational efficiency to banking […] as partners [rather than as] feared competitors,” financial institutions should worry about big tech, because these firms “could rapidly reach significant scale in financial services through their digital platforms, leveraging their rich knowledge of potential customers.”
Uber Money is a case in point. The offering will provide drivers with a free bank account and debit card with 2% cash back on Walmart purchases and up to 6% cash back on gas, as well as immediate access to earnings and a $100 fee-free overdraft. The underpinning to this product is Uber’s ability to monetize its growing swath of user and driver data.
“[With] all the data that we have, we have this amazing insight into how people are spending, how people are earning, and how they’re operating on the platform,” said Peter Hazlehurst, head of payments at Uber, at Money 20/20. The data “allows us to extend products like fee-free overdraft.”
With Uber Money, the rideshare company appears poised to rapidly gain share from banks across a growing number of gig economy workers, who have been previously underserved by traditional banks.
“If you’re a retail banker and walk into your CEO and say, ‘Hey, we’ve decided to waive overdraft fees,’ I’m pretty sure you would get fired,” Hazlehurst said.
Bankers are aware of the increasing competitive pressure. Carlos Torres Vila, chairman of BBVA, reiterated the “data is the new currency” mantra during a keynote. He said tech companies are “leveraging [their data] to successfully enter other businesses, gathering more data as they go along, effectively creating economies of scale and scope, expanding their reach across sectors and gaining immense market power.”
Torres Vila argued for shared data with user consent so banks can compete in the data-driven economy, implicitly admitting that without access to the data that tech firms are accumulating, banks will be left behind. But the truth is, banks already have ample room to improve their business models with the rich transaction data they have on hand.
And data is not the be-all and end-all solution. UI/UX is another area where tech companies are coming out ahead. The new Apple credit card, poised to be one of the most successful launches in recent years, provides evidence of this. As Alyssa Cutright, chief of payments at eBay pointed out, “what’s fascinating about the Apple experience and the Goldman card […] is the interface; […] they really made the user interface very intuitive, very sleek,” adding that “it’s one of those things around innovation – something so simple, just a couple clicks to the left or the right and it’s super different.”
Innovation can at times be simple, but requires a fresh approach.
Banks now have the imperative to adopt some of the practices that are enabling big tech companies to innovate better and faster. Whether through improved data capabilities or enhanced user experiences, for incumbents, the time to catch up has come.
Rodrigo Suarez is the principal of INV Fintech, a New York-based startup accelerator focused exclusively on financial technology. Financial institutions interested in joining INV Fintech’s ecosystem can learn more here.