Garnet Capital Advisors Blog

The emergence and rapid expansion of Neo banks and FinTechs are changing how consumers and businesses access and manage their finances. These emerging dynamics, coupled with the recent aggressive interest rate increases by the Federal Reserve and geopolitical uncertainties, have resulted in competitive pressure for banks. This is to not only gain new customers but to retain the existing ones and their bank deposits.

It is not yet clear whether FinTechs will replace traditional banks. However, the competition for bank deposits is about something more complex than the actual dollar deposit and interest rates. The growing population of millennials and Gen Z wants to be sure that their financial institution adheres to their financial needs and lifestyles. But can banks compete successfully against this army of exponentially growing FinTech and neobank startups? Here is what you need to know:

Why FinTech Companies Are Getting Ahead

Financial marketers' understanding of their institution's customers is crucial to ensuring a good customer experience. FinTechs are transforming retail banking and creating a new generation of giant players in the financial industry by focusing on customer experience and retaining relationships. Some of the tactics deployed include low-interest rates, lower fees on banking transactions, and attractive pricing or rewards. Companies like Apple, Amazon, Alibaba, and Tencent have extensive reach and public trust. It gives them access to enormous amounts of data. These data can be used to customize services for their customers' experiences. For example, Apple's saving deposits hit $10 billion in just 15 weeks. Its customers are eager to put their funds in a high-interest account.

Besides, most customers and businesses demand banking services with engaging websites and mobile user experiences. Most neobanks use the insights from customer data to help customers understand their financial situation and recommend the most appropriate course of action. As transactions move to consumer apps, these FinTech companies offer additional services that increase the frequency of engagement. These include nano deposits and small-ticket loans for financing commercial purchases. For example, Google Pay already offers loans and term deposits, which will open up many banking services in the future.

How Traditional Banks Can Out-Compete the Fintechs

Traditional banks are still the most popular financial institutions around the world. About 69% of consumers in the USA use these brick-and-mortar banks, and their influence on the economy should not be underestimated. For instance, traditional banks enjoy lower capital costs than Neo banks and other online lenders, which shoulder capital costs higher than 10%. However, most financial institutions do not use these tools to attract and convince customers. They do not perceive this as an immediate threat.

Traditional banks should strive to create easy-to-use digital services to improve their customer experience. Most tech-savvy customers are taking advantage of FinTech and Neo bank technologies like Chime and Acorn to make appropriate financial decisions. Also, customers should be able to deposit checks, pay bills, and apply for loans from the comfort of their homes. Most customers switch to neobanks to avoid queuing for loans and other financial transactions.

The recent shift in consumer bank deposits to digital-only banks has been informed by the attractive interest rates and rewards offered by FinTech companies like Apple. If the interest rates for loans and savings accounts are attractive enough, most customers will put their money in your bank. Recently, most financial institutions have made adjustments, like eliminating overdraft fees, to attract and keep depositors.

Improve Traditional Loan Sales With Garnet Capital!

Most consumers adore the convenience of digital banking. However, many still crave a personable experience like speaking to tellers or loan officers directly. As you compete with FinTechs and Neobanks, Garnet Capital brings the personal touch to loan sales, treating each portfolio and client with bespoke analytics and high-touch human interaction. Are you looking for debt or loan sales? Contact us today for an in-depth analysis of the market. We will help you understand and identify the performing, nonperforming, and charged-off loans.