Following on from the Harnessing Fintech Innovation in Retail Banking conference, Senior Consumer Payments Analyst Sam Murrant spoke with conference presenter and BAWAG PSK’s chief marketing officer Markus Gremmel concerning the rise of fintech in retail banking.
Could you give me a bit of background on BAWAG?
BAWAG PSK has a long history and strong brand presence in our native Austria, with 1.6 million customers across the country. We are very much focused on the Austrian market, which is a stable but low-growth market in which risk is low but so are profit margins. In order to succeed in this challenging market, efficiency is critical – and we’ve designed our branches, products, and processes in order to be as efficient as possible.
Through our partnership with Austrian Post, we run a large network of joint branches, which incorporate a post office within the retail bank. This gives us a significant advantage in terms of footfall compared to our competitors, as the joint branches have around 50 million customer visits for non-banking services. When non-customers visit our combined branches, they see our display units, which show a range of financial products in boxes – giving the customer something to pick up and read, as well as a physical item for our advisors to give out in order to capture consumer interest. This branch system, complemented by our full digital offering, makes us one of the most profitable banks in Austria as it reduces our costs as much as possible while maximizing the potential to acquire new customers.
How do you think fintech will transform retail banking in both the short and long term?
In my opinion, fintech innovations in payments have peaked. There are a lot of companies in the payments fintech space and the market is heading towards consolidation. In banking, the most interesting areas are still developing: I see these as alternative lending platforms (e.g. P2P), robo-advice, and value-add services like easier account switching that make financial services easier and more convenient for consumers.
Many of these new retail banking innovations are coming from outside the industry, which is probably inevitable given the speed at which technology start-ups can move. For instance, they do not have to cope with legacy IT systems or high complexity in terms of existing products, and many of them operate as non-regulated, non-banking entities. In the short term, these new companies will bring products to market and disrupt specific elements of banks’ value chains. However, in the longer term fintechs are facing their own challenges when competing with banks, which also have some competitive advantages: these include large customer bases (scale), consumer trust, and established distribution networks. Ultimately, banks and fintech companies will end up partnering in order to truly succeed – banks can’t develop fintech on their own, but start-ups can’t bring their products to market nearly as effectively as a retail bank can.
Is there an existential threat to banks from fintechs?
There is no doubt that banks are losing revenue and customers to fintechs in certain areas, but I don’t think there is an existential threat. Fintech companies have the edge in innovation, definitely – banks’ legacy systems and culture hold them back from developing the products and services that these start-ups can – but these companies are also limited in ways that banks are not. Fintech companies need to build up their brands from scratch, and can only really use the online channel to market and distribute, while banks are established and have physical branch networks for distribution purposes, which are still very important to customers. Rather than an existential threat, I see fintech companies as an opportunity for banks to access new products and services to offer to their customers.
By Samuel Murrant, Senior Consumer Payments Analyst