The financial services industry is continuously evolving, and it is essential to optimize collections strategies to maintain liquidity and minimize risk. One of the most critical choices for credit un...
Technology
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2 min read
It’s not often that you hear about a credit union doing something technologically innovative on the national news—if ever. But, how often do you hear about a technology firm offering innovative financial services? If you answered, “about five minutes ago,” you’ve definitely been paying attention.
Let me preface by saying, media coverage is not indicative of an imminent threat. However, I do believe the increased rate of consumer adoption of financial programs and services offered by non-traditional financial service providers should be a wake-up call that these non-traditional programs could affect the relationship between you and your members.
Follow the money trail
To get a better indication of the magnitude of what’s going on in the market, let’s explore the dollars that are being invested in this industry. In 2015, global investments in Fintech are expected to double from $12 billion in 2014, which had already tripled from $4 billion in 2013. These figures are certainly stunning; however, what should be more concerning to credit unions and community banks is the consumer’s receptiveness to using technology to perform services which have historically been trusted only to traditional financial institutions. Venture capitalists and angel investors clearly recognize this consumer trend and have invested heavily to eager FinTech startups. By 2020, this figure is expected to increase even more, topping out at $46 billion globally.
So, what exactly do these trends mean? Should credit unions collaborate with other credit unions to build the best technology available? Perhaps. Or, should institutions invest heavily in the latest desktop, mobile, tablet, watch, and augmented reality-based technologies? Maybe. What is clear is that credit unions should be laser-focused on the consumer’s needs since the user is generally the sole focus of most technology companies. For example, Netflix® and Redbox® essentially killed the video store, and are now doing their best to take business away from movie theaters. Uber®, even though surrounded by controversy, is crushing taxi services.
Obviously, financial services are not immune to competition from non-traditional providers. Paypal®, Venmo®, LendingClub, and the various crowdfunding sources are directly competing with financial service providers by offering consumers alternative ways to make payments, conduct peer-to-peer transactions, and get small business loans and funding.
Related reading: How to Build a Simple, but Telling Competitive Analysis
What exactly is the threat?
Startup and tech companies are threatening traditional financial business methods in such a significant way that it is eroding financial transactions that consumers have typically associated only with their financial institution. While these companies still have a large hurdle to overcome in gaining trust and demonstrating security, they are gaining momentum by steadily building trust with customers—handling transactions previously only taken care of by banks. In addition, tech companies are more competitive when it comes to their development capabilities and speed to market. They can adjust to market trends and consumer needs faster than the slower/risk adverse management often found in financial institutions.
The status quo is comfortable; however, as the industry continues to evolve, it’s clear that all businesses, financial institutions included, will have to adapt to consumer needs in order to stay competitive.
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