Growing Fintechs have their work cut out for them. They need to navigate evolving customer expectations, the uncertainty of COVID, an investor preference for mature opportunities and rapid digitization in a traditional industry.
So don’t reinvent the wheel. Fintechs must learn from the digital banking best practices of successful players in the digital banking space to craft a strategy suited to their unique goals.
That starts with simple principles. In a previous post, we laid out the three keys for Fintechs looking to challenge or evolve into a one-stop-shop digital bank: goals, end users and partnerships. Digital banking best practices build on those ideas and hone them to a more granular, tactical level.
Here are our five most effective digital banking best practices:
- Build trust by serving a specific market need.
- Get as much real-time customer data as possible.
- Have a detailed short- and long-term business plan.
- Don’t forget the back-end stuff.
- Find the right partners now and for the future.
The key here is you can’t cherry pick among these digital banking best practices. They all feed into one another. They’re also all vital to business growth.
In fact, industry leaders agree that two of the top four things investors look for in new Fintechs are whether you’re serving a clear, pressing market need and whether you’ve got the right partnerships that will set you up for long-term success.
1. Build trust by serving a specific need.
At this point, it’s almost old news that the fintech industry is getting rather crowded. But we’ve been keeping an eye on digital banking trends during and post-COVID, and it’s not all bleak: the addressable market has also dramatically increased as more individuals and businesses are suddenly online, and traditional services can’t pivot quickly enough.
However, the worst thing you could do is rush in blindly trying to offer every service under the sun. You’re competing against new digital banks, community banks and existing tier one banks shoveling money into digital transformation. Those competitors have a major trust advantage.
The only way to survive is to build a competing store of trust by carving out a profitable niche in the market, and then not budging for a while. That means not chasing capital and looking to sell immediately or trying to expand too quickly without regard for your core service.
Successful digital banks focus on a specific, solvable need that is currently unmet by the market — then build a foundation of trust by staying loyal to that original purpose and customer base.
2. Get real-time customer data.
Once you start building that customer base, you need to actually listen. Don’t get swept up in the latest digital banking craze, like debit cards, just because it sounds sexy. Build a continuous feedback loop that includes:
- Market research and conversations with prospects and customers
- Real-time data feedback in your product that shows how customers actually use and interact with your platform
This is a powerful best practice that digital banks lean on to differentiate themselves from traditional banks. It’s one that they use to inform product upgrades, determine new service offerings, shape customer support and even pivot business strategy. HMBradley, for instance, monitored customer usage and trends in real time, which led them to discover a whole new target segment for their solution: baby boomers. That data enabled them to adapt their marketing and solution to appeal to a wider audience, to great success.
Essentially, digital banks saw how frustrated customers were that traditional banks didn’t listen to them and decided to flip the script. To compete, you need to do the same.
The best digital banks have extensive feedback methods, market research and data models informing both their decision making and their customer service.
3. Have a detailed business plan.
It seems simple, but many Fintechs get so caught up in the excitement of a thrilling idea that they forget to take a step back and write down a detailed business plan.
Outline a robust plan with one, three and five year goals with details for strategy, growth, product offerings, tech, team size and so on at those checkpoints.
The exercise will also help you understand whether:
- You’re looking for partners that will help you get started with a proof of concept to get in front of investors (but that can’t scale beyond the one year mark), or
- You’d rather grow with partners that are in it for the long haul from day one.
All the successful digital banks we speak to started out with a business plan with one, three and five year goals.
4. Don’t forget the back-end stuff.
Most growing Fintechs are masterminds in UX or growth hacking. But that often means that behind-the-scenes details like compliance get forgotten or put off.
The truth is, your UX is only as good as your back-end workings. The best looking app won’t matter if your customer really experiences a slow, frustrating journey from when their money leaves until it hits the account of the person they’re paying. That’s not to mention how easy it is to get shut down or dropped by the wrong partner if you don’t build enough trust in your regulatory environment.
Digital banks, on the other hand, have compliance down to a science because they often have roots in the traditional banking sector.
So learn from that perspective, and make compliance a priority — which usually means finding the right partner.
A key digital banking best practice is investing time and resources into back-end logistics from the get go.
5. Find the right partners now and for the future.
Digital banks — and particularly Fintechs that become digital banks — don’t go it alone. They build partnerships that suit their business needs and that go beyond a one-way vendor relationship.
If your current partner isn’t equipped for the volume of payments or loans that you’re hoping to move in 6 months, or is working with manual processes bandaged together, you need to know that things will start to break once you cross a certain threshold.
You also need to anticipate what things will look like once growth happens, because it can happen virally: what does your business look like when you have one million users, where a month ago you had 100,000? What has to change to make that possible?
Most likely, the answer is your partnerships. If you started out with temporary or low-scale partners because they were cheaper to work with, you need to have next-step partners lined up. Don’t put it off. Have two-way conversations and interviews; put a plan in place for rapid transitions. Alternatively, you might decide to swallow the cost up front to work with a long-term partner from the start and grow together.
The bottom line here, and one that digital banks understand well, is that you’re only as good as your partners.
Digital banking isn’t an easy industry to break into. But it’s one with endless opportunity for innovation right now, and with a few tried-and-true best practices up your sleeve, you’ll be several steps ahead of the game.