Over the past decade, the nature of currencies used across the world may have shifted, but the underlying principles that make transactions happen have stayed the same.
According to numerous financial industry analysts, 2017 may be the year that financial technology, commonly shortened to fintech, either transforms financial services or spectacularly implodes. I’ve read dozens of articles over the past few weeks commenting on the recent proliferation of fintech startups and the opportunities awaiting them, as well as the myriad regulatory and marketing challenges they face.
Indeed, as a fintech entrepreneur myself, I can sense that our industry is on the cusp of something big. From cryptocurrencies like bitcoin and Ethereum to contactless payment platforms such as Apple Pay, more and more technologies once considered radically disruptive or untenable are entering the mainstream. Businesses and individuals alike are hungry for better ways to pay, get paid and manage their money. And, compared with the newcomers, established financial institutions have been slow to keep up.
But the banks and credit unions of the world still have a few key competitive advantages over would-be innovators, and those of us who seek to shape the future of our industry would be wise to learn from the past — and the present.
In spite of the industry’s many scandals, crises and various patterns of wrongdoing, consumers generally feel confident in the banking system. Consumers may not like financial institutions, but they continue to place their confidence in those institutions (68% of U.S. households utilized a bank account in 2015). Why?
For one, because governments do, too. Federal agencies not only regulate banks but ensure their long-term health and well-being. In turn, banks fund thousands of loans offered by agencies such as the U.S. Small Business Administration. The relationship between the global financial industry and nations’ treasuries is a centuries-old entanglement that goes unquestioned by most people who participate in capitalism.
The same is true at the state and city levels. Most local banks invest back in their communities, whether through project funding or charitable giving. It’s difficult not to believe in the organization that helped build a bridge downtown or co-sponsors your kid’s Little League team. Even if you don’t appreciate the way a bank is developing over neighborhood landmarks and pushing people from their homes, it’s difficult to ignore the fact that it has the power and stability to make things happen.
Perhaps that’s one of the reasons business owners look toward their financial institutions for support and guidance. Beyond providing the loans necessary to build companies, banks and credit providers advocate for business. They host events as well as offer clinics and services that mentor community businesses. Just consider that American Express owns the trademark for Small Business Saturday, for example, or that Chase for Business is a presenting sponsor of the annual Inc. 5000 Conference.
Financial institutions have standardized the structure and pace of transactions. Bank payments and transfers may not be as fast as any of us would like them to be, but they are predictable. You know that a check will clear your account one to two business days after you deposit it. You understand your monthly credit limit. You’re familiar with your mortgage and car payments, and you can more or less anticipate how much your rates will increase next year and the year after that.
Aside from the odd overdraft fee or secret account opened in your name, a bank’s behavior is rarely surprising. That’s by design. If you are a business owner, you have a pretty good sense of what to expect when applying for a loan: Your financial institution is looking for a sound business model, detailed paperwork and assurance you can pay it back on time.
Switching financial providers? Good news: Your new bank is probably a lot like your old bank — down to the color of the walls and the quality of the free coffee in the lobby. Your card, checks and account information all look basically the same as they always have. Boring? Sure. Familiar? Absolutely.
Familiarity is indicative of the long-term value of an industry. It’s a sign of deep generational trust. Bolstered by relationships in the community and government, the familiar becomes not just the best option but, for countless consumers, the only conceivable option.
In many ways, this pervasive trust has little to do with the actual mechanisms that protect customers’ money. Even if an individual has no idea what the FDIC is (the Federal Deposit Insurance Corporation), they understand that their bank has a special connection to the agencies that print and ensure money, so their account seems safe enough. By contrast, the decentralized blockchain behind bitcoin may look too new, too complicated and too robotic, no matter how much the advocates crow that it is much more secure and reliable than private institutional databases.
When taking cues from what came before us, our industry should understand that the time it takes to establish a relationship is more valuable than the scope of that relationship. The appearance of transparency and accountability is just as important as our obligation to do right by our customers. We need to appreciate the time and humanity it takes.
Bankers have licenses, histories, names and faces. Startups have technology, ideas and nerve. Who would you rather trust with your money?
Repost from original publication: https://www.forbes.com/sites/forbestechcouncil/2017/07/19/what-banks-have-that-fintech-startups-dont-yet/