‘There’s an app for that’: a phrase Canadians use more and more across all markets, including the financial industry. People no longer stand on the curb to hail a cab, or even go into a store to order a sandwich; instead they open a mobile app and let service come to them. In the financial realm, consumers now do their banking in real time from anywhere, at a fraction of the fees with fintechs. They don’t go to a branch during business hours to apply for a loan or to pay back a friend. When branchless banks first emerged, they were touted as being the end of an era for Canada’s traditional banks. Today, three quarters of Canadian millennials say they are willing to manage their money with a ‘nonbank’, so it would appear that fintechs have already won the race. But, over half of that same population also states that they don’t know what a fintech does. At Gaggi Media, we believe we are seeing a sea change in how Canadians manage their money and fintechs have an amazing opportunity to carve out their place in Canadian consumer banking. But, ultimately it will be the fintechs—not traditional banks— that will need to build a customer awareness strategy in order to remain competitive.
Share of Voice is Not Shared Equally
Fintech companies are bounding ahead with millennials on two fronts: cost and convenience. In 2015, there were 13 billion payment transfers over mobile devices (The Star, 2016). Fintechs such as Tangerine and PC Online Banking offer no-fee daily banking, and consumers manage their accounts entirely online or with the mobile app. Andrew Graham, CEO of Canadian online lender, Borrowell, says that his service caters to Millennials who don’t feel the need to go to a bank branch for a loan: “millennials are also more willing to experiment and try new brands and products,” he explained. A 2014 Accenture survey said that 75% of Millennials aged 18-34 are willing to use a “nonbank” for their financial transactions. Online companies like BorrowelI are offering consumers quick sign-up and approval processes, higher interest rates on savings accounts, and lower management fees, all of which are long-sought-after features by consumers. But, banks lead the way in one key area: visibility.
Canada’s traditional banks have a serious advantage over fintechs in just their sheer size and legacy. They have established revenue streams and budgets allocated to advertising, and although large, traditional institutions are often less agile than their flat startup competitors, Canada’s banks have the ability to take up share of voice in the market. According to a recent survey by EY Canada, that might be exactly what fintechs are facing: 60% of digitally aware Canadians were not aware of fintech offerings. In order to maximize their position in the market, fintech companies must market themselves effectively. Although the fintech market is hot, marketers should allocate effective advertising spend into a long-term awareness strategy to reach consumers, or they risk losing their edge.
Sea Change in Personal Banking
At first it was predicted that big banks would be too slow to react to the disruption that fintechs were causing in the market, but that has not been the case. Banks are developing their own mobile apps and online products to compete directly with fintechs. And when they can’t compete, they partner with them to supplement their service. The Bank of Nova Scotia started a rapid labs program, where different divisions of the bank gather for intensive 16-week brainstorms in order to tackle industry issues. The purpose behind the labs is to “operate as digitally native firms do,” says Kyle McNamara, co-head of information technology (The Star, 2016). Lending Club, one of the first and most prominent fintech companies in the marketplace, was originally founded as a peer to peer lending service. Consumers could obtain loans at lower rates than were being offered by banks, and investors had an alternative to traditional vehicles. Today, however, up to 80% of Lending Club’s liquidity is provided by financial institutions (Philippe Gelis, CEO at Kantox). Big banks have found that they can make more profitable loans using a web-based third party such as Lending Club, than they can by placing a loan officer in a storefront branch.
Evolving with Consumers
As traditional banks move certain services online or to be handled through a third party, the brick-and-mortar locations of banks will also change, but they will not be rendered obsolete. Canadians still value customer service and interaction with a human (Mintel, 2015). Canada’s aging population also still calls for a brick-and-mortar location, while older consumer cohorts favour customer service the most, even if they have to pay fees and travel to their branch (Mintel, 2016). They also prefer to go into the bank to discuss complex banking issues (Mintel, 2016), so while fintechs surge ahead on automating simple tasks and daily banking, the need for a hub still exists. Banks can stay relevant by turning their storefront locations into specialist centres, focusing on customer care and expertise more than day-to-day banking.
The steps taken by fintechs in the Canadian marketplace, and the zeal with which consumers adopt them are clear indications that consumer values are shifting. As a generation comes of age who will likely never write a cheque, and who’ll become increasingly unfamiliar with carrying cash in their wallets, fintechs will prove to be an attractive option, but in order to find their place in the emerging financial landscape, they must focus on making their presence felt with Canadians.