Fintech: A Matter of Trust
By Dat Tran, Venture Fellow, Early Light Ventures
Years ago, I had a paper route as a kid. And the idea of earning my own money (so I could collect sports cards, something completely logic-defying to my mother) was very motivating. I vividly remember the wonderful feeling of going to the local bank with my mother to deposit my hard-earned money. The bank teller asked me about my paper route and commended me for my hard work and ‘diligence.’ That was my first experience with financial services.
Fast forward to now and that first positive experience still lingers. While I do most of my banking online these days, I still enjoy the occasional trip to my local credit union just 5 minutes from my house. That sense of trust and security is still comforting when it comes to money matters.
Not much has changed since. Trust remains a key factor in the way people make decisions about who gets to handle their money. As the internet world exploded, so did the menu of digital financial products and services across the globe — banking, financing, payment, insurance, investments and more (crypto, anyone?). Demand for trust is higher than ever. Is the fintech world keeping up with that demand?
The current wave of fintech (post-2008 financial meltdown; history of fintech dates back to late 1800s, with telegraph and Morse code technologies enabling electronic fund transfer) has opened more regulatory doors and market opportunities for fintech. It also pitted traditional financial institutions (FIs), i.e. banks, credit unions, etc. against these newcomers in the battle to win customers’ trust.
The fintech sector has been booming in recent years, even during the global pandemic. Investments in startups in 2021 almost doubled the previous year, with an abundance of ‘unicorns’ making their way through the fintech sausage-making process. While some data have shown that younger people (i.e. Gen Z, millennials) embrace fintech products/services, there is still a trust gap in fintech across broader customer segments. A key question remains: how might fintech better build trust and consistently deliver financial peace of mind to customers, including those who have been served by neither FIs nor fintech?
Money is deeply personal, so it helps to make fintech more personalized, even as we become a more digital world. Trust is a two-way street and like any relationship, it takes serious commitment from day one. A good starting place is for fintech companies to differentiate themselves as individual brands, and not as a collective fintech. After all, fintech is simply the use of technology to improve the delivery of financial services. And how that delivery is done matters a lot to customers.
There are at least three ways fintech brands can stand out when it comes to trust. They can engender trust by the way they interact with customers, develop their products/services and business partnerships within and outside the financial sector. Let’s dig in a little further.
Customer experience
While the world functions more online than ever, humans are still social creatures and hard-wired to look for genuine interactions with other humans.
A recent PwC study shows that 70% of consumers expect companies to deliver personalized interactions. Companies that prioritize the ‘right’ technology to provide the best customer experience have the upper hand over those using technology for the sake of being ‘innovative.’ The same study shows that 1 out of 3 brand loyalists would leave the brand, even after one bad experience.
A key question for fintech brands when it comes to customer experience is: do you speak their ‘language?’ It goes beyond learning of customers’ preferences, i.e. what they like, what they don’t like; it requires at least some degree of insights about their mindset as humans, not just customers.
“What keeps people up at night?” has been, and still is, a good question to guide fintech brands as they develop their customer experience strategies. Fintech brands can be creative in developing ways for customers to interact with brands, not at a single point through their own technology, but at multiple relevant life points integrated through their and their partners’ technology. The key is to sustain engagement and not just measure customer satisfaction after the fact.
Product development
Fintech brands can build the trust journey with customers from day one of their product development process. These are some questions that can help guide the process:
· Why is their product/service relevant to (target) customers?
· How do they plan to involve customers in their sprints?
· Are there meaningful customer-centric metrics beyond product usability?
· How do they gather and integrate customers’ feedback into their product development cycle?
While the tech part of fintech is important for obvious reason, it cannot be the sole focus of product development. Capturing the mindset of customers, i.e. their culture, on the receiving end of that product is just as important.
The early stage customer discovery and development process is a good opportunity to understand how potentially the product would fit into people’s life. This type of probing gets to the heart of the WHY question, i.e. what is the product vision? And what human problem does it solve for the customers? This goes well beyond usability testing and whether a user can accomplish what the product goal, using XYZ functions/features.
Product development and user experience teams (part of customer experience) must be in sync right at this early stage, including sharing real time data about users/customers. For a small startup team, the responsibility for creating a holistic customer-centric culture most likely rests with the CEO.
Designing a good user/customer experience is about understanding both product algorithm and human algorithm. The advances of behavioral science in recent years offers many insights into how humans make decisions (surprise, surprise, not logically or efficiently but rather irrationally and emotionally) and should be required learnings for any good product development team.
An area of opportunity to illustrate this dual approach is data privacy. What if fintech brands were as enthusiastic about showing off their data privacy strategy as they do their technology? For example, how are they using advances in cloud technologies to protect consumers’ data privacy? And can they communicate that plainly? By all accounts, many consumers still have reservation, if not downright fear, about their data being misused or used without consent. This is an opportunity for the fintech sector to do better.
Business partnerships
“Tell me with whom you associate, and I will tell you who you are.” ~ Johann Wolfgang von Goethe.
This old saying very much applies to customers’ perception of trust. Brand interaction is broad and covers consumer experience across different aspects of a brand, including business partners with whom they interact.
It is encouraging that relationships between FIs and fintechs have become less adversarial, even going past the ‘frienemy’ stage. Both have begun to realize the value of collaboration — and even co-creation in certain cases — to build more trust into financial products/services. There is more they can do, whether developing or scaling a new fintech.
They can leverage each other’s strengths to benefit consumers. For FIs, working with fintechs means gaining access to the latest technology capabilities — and the potential to expand new services, e.g. non-traditional, ‘round-up’ saving accounts. For fintech, working with FIs means more credibility (or less perceived risk) with consumers when it comes to regulation. Clearly, there is no one size fits all solution. Depending on specific markets, one or the other might hold more trust among customers. There’s little doubt that collectively, the value they offer to customers is more than the sum of their parts.
A Perspective: Credit Mountain (ELV portfolio company)
Credit Mountain took the approach of packaging their AI Credit Counseling as a B2B2C SaaS solution. Credit Unions (CU) leverage the Credit Mountain platform to analyze declined borrowers and provide a personalized plan and toolkit for each member based on their specific credit profile and financial goal. For the end-consumer, the experience is white-labeled with the Credit Union’s brand creating a trusted experience which helps the member feel comfortable taking action and sharing data.
CEO & Co-Founder Nathan Pinto elaborates on his company’s alignment with the CU movement, “Credit Unions have largely operated in the best interest of their members, but in an increasingly digital world need to quickly harness scalable and personalized technology experiences in order to meet the needs of their customers. Our company has been a mission-driven fintech from day one and we are excited to work with Credit Unions to learn the needs of their employees and members in order to build meaningful products that can focus on customer satisfaction instead of generating revenue to offset customer acquisition costs.”
The global expansion of fintech provides many good lessons learned and points to another area where FIs/fintech collaboration can be extremely fruitful: localization of financial products/services. In simple terms, it means having products/services that can speak to consumers at the local level. It requires not only having appropriate language and financial contents, but also a relatable ‘tone,’ i.e. how people think about money plays a role in their life. This hybrid ‘high-tech-high-touch’ might just be a win-win-win strategy for FIs, fintech and consumers.
Final thoughts
Simply put, for fintech startups trust should never be an ‘afterthought.’ On the contrary, it should be the north star in guiding how they should design their products/services and build partnerships to ensure they reach not only their customers, but also their customer’s financial peace of mind.
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