If by bank (HSBC) counts as a typical “traditional financial institution”, in my opinion it is exceptionally good at IT including cybersecurity, exceptionally good at customer service, offers all the services I need as a private individual and as a business, all for very low rates (last time I looked for a mortgage it was available for no fee at 1.79 per cent).
It has been unwilling to take much risk in terms of lending to my business, but then as a bank it is not in the business of taking high financial risk, and my business has been a pretty high financial risk for a while, being in the oil and gas industry.
So how does a fintech company compete with this?
Here’s a few ideas.
Many people find their bank not very ‘user-friendly’. My bank does create a few hoops – complex logins, difficulty setting up new bank accounts. Perhaps there’s room for improvement there.
HSBC has a weakness on some financial transfers – occasionally I’ve made transfers to India which have got stuck on the way, or blocked for security reasons, and no proactive contact from the bank to fix it, they basically wait until I call them. It probably isn’t HSBC’s fault, but there’s room for improvement possibly.
I probably score reasonably well on whatever HSBC’s scoring system is. The scoring system gets pretty vicious for people on the wrong side of it. Perhaps there are millions of people with low score but who could be good customers. Are there opportunities there?
Perhaps there could be better international services. Sometimes I receive and spend money in the same foreign currency, and if my company was bigger there would be more than that. Perhaps it could hold the money for me for a while in Euros or Dollars so I don’t lose twice on the exchange?
The money transfer costs are quite high – £17 to send £100 to the Netherlands for example
I don’t have much insight on when my customers will pay, except from employing someone to talk to people with overdue debts, which is expensive. Having that knowledge could be very valuable.
Bank reconciliations are a very manual process, employing someone to compare the bank statement line by line with the record in the accounts software. Perhaps this could be easier? (Although the bulk of this effort is keeping the accounts software up to date, which would need to be done manually anyway)
Perhaps all the various roles – accounting, debt collection, bank transfer management, cash flow prediction, could all be better integrated?
It is possible to imagine more sophisticated loan offerings – at the moment loans are basically only offered when the risk is zero, and impossible or silly rates otherwise.
Could there be a loan business for more high risk, but still low risk, loans, with some kind of compensation? For example loans guaranteed against future bookings, or loans which are deducted before any payments are made? Or loans for specific business sectors where the bank gets involved in the business’ future scenario modelling to get a better sense of the risk?