3 in 5 customers will be using digital offerings by neobanks and challenger banks by 2025.

 

The CEO of Remitly argues that Fintechs are in an even stronger position post-COVID, poised to create an entirely new financial infrastructure.

 

The fintech market is rising at roughly 10% CAGR.

Despite the crowded market, all signs indicate that now is a fantastic time for growing Fintechs to break into the digital banking space — if you do it the right way.

So, how do you do it?

We’ve broken it down into a few tiers.

  1. At the top is your strategy — the guiding principles to evolving your Fintech platform into a digital bank — which covers your goals, end users and partnerships.
  2. Next comes tactics: digital banking best practices, from building trust to collecting customer data.
  3. With that foundation in place, you just need the right tools in your back pocket. That obviously includes the staples like a solid mobile experience, but it also means things further off the beaten path — including digital banking features that traditional banks are very weak or very strong in.

Here are the 4 digital banking features all fintechs need to offer to win business from traditional banks.

1. International capabilities.

Global business is booming, but most banks can only offer limited international features. That’s particularly true in commercial banking.

For challenger banks, this presents an opportunity to outdeliver. Financial solutions that can provide a core service and the added bonus of seamless global transactions will attract and keep customers like flies to honey — plus, they’ll also pull in additional revenue for their company.

The best way for fintechs to provide that service in an effective (and cost-effective) way is by finding a partner that offers the quality and experience you’re looking for. A cross-border payments partner, for instance, should enable your clients to both purchase and receive revenue seamlessly from outside their home location so your solution stays sticky long-term.

2. Streamlined regulatory compliance.

You might not think of compliance as a feature, but it is in the eyes of prospective customers. Compliance — and associated trust — is a leg up that established banks have by default, so challengers need to knock compliance out of the park to make it clear that they’re a serious contender.

Many fintechs and emerging digital banks aren’t proactive enough about regulatory compliance. In truth, the financial sector is so complex that compliance needs to be a day-one concern: even long-time banks are getting hit with fines for not following regulations.

Our best suggestion? Partner with an MSB, fintech or bank that can cover the regulatory side of things. Here’s a quick list of good options:

  • MSBs (Money Service Business) –> Currencycloud
  • Banks –> CSFB, Radius Bank, Metabank
  • Fintechs –> “Banking as a Service” providers like Dwolla, Synapse, Alviere, Bambu

Feel out which partner will be the best fit for your needs, and then get into the technical side of things like agency agreements.

3. Specialized automation.

Automation is another feature that seems like a no-brainer, but once again, it’s the details that matter. Automation that streamlines your operations will always be a great feature for your business, but automation that makes life easy for your target audience is a game changer.

For instance, if you’re looking to capture corporate clients, automating customer onboarding and the Know Your Customer (KYC) process would be an enormous value-add that would set you apart from most of the competition.

Corporate banking in particular is primed for innovation here. The demand for — and necessity of — automation is surging, but in the US, this reality is still on the horizon because solutions struggle to bridge information gaps across different states. Any challenger bank or fintech that automates a frustrating menial process will have customers flocking to its doors.

Accounts Receivable is a great example. For all the payments companies out there, very few offer streamlined digital receiving services, particularly internationally. Over 50% of US companies still use paper checks to pay invoices and wait in the mail to receive their own payments. A modern AR process isn’t just a great feature to offer, it’s also a prime target for automation.

4. End-to-end customer experience.

It’s probably pretty self-evident that you need to offer a great customer experience — that’s another feature that can be a vital differentiator for digital banks. But many challenger solutions fall short of a true end-to-end experience.

That’s often because of parasitic partnerships. If a partner enables you to offer a certain feature, but does so on their own terms or in a way that degrades your customer experience, you’ll eventually lose customers. Your customers will go around you to find the experience they’re looking for.

At that point, you need to weigh the importance of a particular service against the benefits of an end-to-end experience. Ideally, you’ll have the flexibility to offer the same service but with a unique experience optimized for your customers’ needs.

In other words, you don’t need to create all your own solutions, but you do need to own all your relationships and have full control over the experience you provide.

Ready to dive deeper into effective partnerships? Learn how to scale without risk, serve customers without accruing costs and go cross-border without crazy fees in this eBook on third-party payment providers.

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Matthew DiCristofaro

Matthew DiCristofaro has a breadth of experience consulting fintechs and FX startups in building powerful, customer focused payment and FX platforms. With a passion for the advancement of payments technology, Matt is keen on keeping up with the latest trends in fintech. When he isn’t writing or working with his clients, Matt enjoys making his own wine and getting his hands dirty in the Currencycloud garden.