The financial services industry has been subject to radical swings in how they approach customer service. From the pre-automation era of the ‘50s and ‘60s, modern innovations such as online loan portals didn’t exist yet, but loan officers had more leeway in going outside the rules if they felt a candidate was a safe bet. There was a certain subjectivity involved, and lending decisions weren’t, as they are today, based almost exclusively on a no-exceptions algorithm created by quants who wouldn’t know what to do with a customer face-to-face if their careers depended on it. George Bailey, the friendly banker played by Jimmy Stewart in “It’s a Wonderful Life” may have been only partly fiction – there was some truth to the way he operated. “I know him from Rotary” and “Gee, I sure think that idea for a new small business is swell,” took on more importance than what was actually on the application.
The more recent model – especially after the housing collapse of 2007 – is a bit stricter, and the George Baileys of the banking world have been replaced by underwriting algorithms that make decisions based on a preconfigured set of rules. Loan officers at banks are no longer decision makers, they merely process applications, and their opinions as to whether your startup idea is a good one no longer matter.
It has been only recently that the pendulum has swung back to the Jimmy Stewart model. And ironically, it is the continued advancement of fintech and automation that has enabled the shift to more personalized customer service. Increasingly, the leading edge of customer service in the financial sector is being led by non-bank fintech companies.
“The strict, rules-based algorithms that dominate banks’ underwriting decisions have caused a backlash,” said Aaron Ledbetter, CEO and cofounder of LendFu, a peer-to-peer lender. “There are worthy applicants out there who are better risks than the numbers might indicate, and banks are missing out on an opportunity to address this under-served population. Peer-to-peer lending has re-balanced the decision-making process. While the numbers still matter, individual lenders in the peer network can make decisions based on a personal discussion, knowledge of a particular opportunity or particular industry, or other ‘soft’ factors that the banks routinely ignore. In our peer-to-peer lending network, the results are proving that we’re right – the better solution in lending is a more personalized balance between numbers-driven underwriting and establishing a real connection between borrower and lender.”
Non-bank startups like LendFu, and more established non-bank companies like Paypal and Barclay’s PingIt are consistently rolling out offerings that are far ahead of mainstream banks in innovation and customer experience. The UK-based Barclay lets consumers use PingIt to send and receive money via mobile phone, just by selecting someone from the address book, entering a mobile number and a dollar amount, and tapping “send.” This is a service that was obviously not designed by a banker, which certainly makes casual money transfer a lot easier. Banks are starting to see the handwriting on the wall though, and are starting to fall in line with simple online innovations, such as Wells Fargo’s convenient facility for making appointments online, to avoid having to wait in the lobby. In addition, a host of other online, non-bank services are filling the gap both in terms of more convenient services, and offerings that traditional banks no longer touch, such as small loans, registration loans and convenient money transfer – the latter of which banks still seem to think should be done by paper check.
But while banks continue to ignore a rapidly growing underserved populations, companies like LendFu and Amber Financial have stepped up to fill the gap. Ryan Cheung, Business Development Manager at Amber Financial, says “One instance where fintech has changed the customer experience with money lending is particularly true with immigrants. Almost all immigrants to new countries do not qualify for loans due to a lack of credit score. Where fintech companies like Amber Financial shine, is they have discretion of lending to individuals who might not have a local credit score, but identifiable assets in their home country. Fintech has allowed lending to become a humanized experience between an individual and a company, versus a blanket statement for everybody looking to take out a loan.”
PwC also notes that 75 percent of bankers think that the most important impact FinTech will have will be an increased focus on the customer, with a bank executive in PwC’s report noting, “We thought we knew our customers, but fintechs really know our customers.”
James Kotecki, Head of Communications at Automated Insights, a tech company whose Wordsmith software generates human-sounding stories around raw data, says, “Automation may conjure up images of overly ‘robotic’ interactions between customers and banks, but in fact, it’s the other way around. Automation of content from data enables financial institutions to craft personalized, human-sounding reports for each customer, elevating the customer experience and helping them better understand their investments. In other words, automation allows an institution to give all of its customers a personal touch.”
Earlier attempts at automation fell flat in the financial segment as impersonal, inflexible offerings that could never replace the smiling face of the rapidly diminishing George Baileys of the banking world, but today’s fintech combines the best of both worlds, with increased automation delivering more convenience than old George could ever muster.
