The Fintech Education Problem
November 10th, 2019. I just returned from a trip to the one and only “city that never sleeps” New York. A city that gives you sensory overload with blinking lights, food aromas, and noise everywhere. A city that grants immediate access to everything at any time. The only barrier to entry is money and the million-dollar question after that is how to pay, since there is an endless amount of payment options that exist.
As a rule of thumb, I always try to travel cashless. For me, this means a much simpler and more enjoyable experience whereby everything is paid using my phone or smartwatch. More specifically, I use the Revolut app, which enables me to easily change money from swiss francs to any currency of choice. Since my goal is to always make the payments process most seamless and convenient for myself, I use Revolut in my home country, Switzerland, as well. Unfortunately, my credit card provider has yet to provide such a service — part of a larger problem with the traditional banking system itself.
During my stay in New York, I was able to go completely cashless, aside from the three dollar tip for luggage storage at the hotel, which is fair. This led me on a search for an ATM where I had to pay a whopping four dollars for the withdrawal. Considering the amount of petty cash I needed to utilize, this was a high price to pay.
When paying in stores, I noticed employees directing customers to insert their credit card chip to pay for items. Speaking from experience, this procedure takes much longer than tapping the credit card to a device, which would improve check-out efficiency indefinitely. While this isn’t the most important issue plaguing our banking system, it is one that should be addressed as a significant portion of the Western World will soon be left behind in the race for fintech adoption. To compare, according to a 2018 Worldpay global payment report, “mobile wallets dominate Chinese payments unlike anywhere else on the planet.” They are experiencing a digital revolution, while the U.S. and even Switzerland are only evolving.
Part of the reason this isn’t a huge priority for these countries is due to comfort in prosperity and the fact that they’re overbanked. Simply put, westerners don’t need the most efficient payment methods to survive. They have an abundance of other banks vying for their business which are happy to pay a premium for their services.
But, to be fair, smart fintech adoption is alive and well in certain places in New York. Take Square for example — a white tablet, which lets the customer self-checkout at the counter. It is by far my favorite payment experience, but it has yet to be fully accepted everywhere.
When discussing this with an American not involved in fintech, I notice a complete lack of awareness in the importance of adopting digital or smartphone banking. As we passed an advertisement of N26, I started talking about the German digital bank, which has entered the U.S. market this year. She told me she never heard the name, and that she and her friends still use a physical branch to do their banking.
One reason why digital transformation is slow to arrive in banking is the legacy systems in place. Much of that that has to do with the decision-makers who continue to earn a sizable income from traditional banking. Perhaps this is a fear of change problem, but mostly wealthy bankers are still profiting from outdated systems which are preventing a much-needed paradigm shift to digital banking.
By being the first to invest in a new core banking system, or in innovative fintech projects, they see a decline in the EBIT in the short run. But, isn’t there an obligation to consider the long term?
Now, since more and more fintechs strive to develop new services to meet customer needs, it is only natural for customers to gravitate toward the convenience and seamlessness that these companies already offer. And while banks (still) benefit from their loyal customer base, a sizable majority will begin to seek out another service for a more competitive price. The fintech communities, enthusiasts, and evangelists out there do not represent the masses and therefore have less bargaining power. What if traditional bankers become incentivized to start to educate themselves in fintech, and together begin to educate others?
I am confident that by applying to Metcalfe’s Law, I will help drive fintech innovation further and make an impact on the future of financial services.
So let’s connect, collaborate, and also educate to cultivate fintech ideas for impact.
