The Weekly Extract from Extractable is a condensed roundup of digital experience news for financial services institutions, and our take from San Francisco.
This week we examine the present and likely future of blockchain in Financial services. We look at fintech’s largest ever IPO, and finally, we explore post-Covid banking behaviors beyond digital adoption.
Blockchain: A Solution Looking for a Problem?
Earlier this year, I was interviewed by Chatbot provider Engati for their podcast. They asked me about the influence blockchain will have on future of financial services.
They were surprised when I answered that so far it looks like a solution looking for a problem. Jesse Frederik writing for The Correspondent this week had an excellent piece that echoed these views.
Frederik writes:
“there’s a huge gap between promise and reality. It seems that blockchain sounds best in a PowerPoint slide. Most blockchain projects don’t make it past a press release, an inventory by Bloomberg showed.”
“Out of over 86,000 blockchain projects that had been launched, 92% had been abandoned by the end of 2017, according to consultancy firm Deloitte.”
Frederik quotes former blockchain developer Mark van Cuijk,“you could also use a forklift to put a six-pack of beer on your kitchen counter. But it’s just not very efficient.”
Simultaneously, as noted this week in Fortune, JP Morgan Chase sold its enterprise blockchain project, Quorum.
“Quorum, the enterprise blockchain the bank spent years developing, to ConsenSys, the Brooklyn-based blockchain software firm run by Ethereum co-founder Joe Lubin.”
In Fortune, David Morris and Jen Wieczner pair the news with JP Morgan’s announcement that they are banking crypto exchanges Coinbase and Gemini. Thus, they speculate:
“…it reflects a shift in priorities on Wall Street, where financial firms have lately put greater emphasis on trading businesses than software businesses—and building blockchains is, at its core, a software business.”
Moving away from blockchain while banking crypto exchanges may or may not be related — we expect the latter.
Late last year, Gartner published similar views in an article about the Blockchain Hype Cycle. In it they quote Avivah Litan, analyst and research vice president at Gartner:
“Blockchain technologies have not yet lived up to the hype and most enterprise blockchain projects are stuck in experimentation mode. Blockchain is not yet enabling a digital business revolution across business ecosystems and may not until at least 2028, when Gartner expects blockchain to become fully scalable technically and operationally.”
Perhaps it’ll take eight years more for blockchain to find a problem to solve. At this point, we remain doubtful of the near-term impact of blockchain on financial services.
IPO Nears for Ant Group, World’s Largest Fintech Firm
The financial press is abuzz this week about the impending IPO of the world’s largest fintech firm, Ant Group.
Lulu Yilun Chen writes in Bloomberg/Yahoo Finance:
“Billionaire Jack Ma’s Ant Group is poised to pull off what could be the biggest initial public offering ever by simultaneously listing in Hong Kong and Shanghai. It’s said to be gunning for a valuation of $225 billion, making it the world’s fourth-largest financial company.”
Ant Group combines a $17 Trillion payments platform, Alipay, with unsecured loans through Huabei (Just Spend) and Jiebei (Just Lend), money market fund Yu’ebao (The Great Stash), credit scoring platform Zhima Credit, and insurance products through Xianghubao.
Many is the West think of PayPal as the largest fintech firm out there but they pale in comparison. As noted by Mark Rubenstein in an article in Marker.
“Today, Alipay has 1.3 billion annual active users (compared to 346 million active PayPal accounts worldwide). The majority are in its home market of China, but the company also has over 300 million users across India, Thailand, South Korea, the Philippines, Bangladesh, Hong Kong, Malaysia, Indonesia, and Pakistan. It has a 54% share of the Chinese digital payments market, which in total did volumes of about $33 trillion last year.”
Note that this is just one of Ant Group’s divisions.
Rubenstein notes:
“Ahead of its IPO, Ant Financial has rebranded itself again, into Ant Technology. It released a three-year plan in March centered on opening up the Ant ecosystem to a wider selection of partners, not just financial institutions. Its new app incorporates local services like food delivery, transport, and medical services, reflecting the degree to which the company hopes to become ensconced in its users’ daily lives.”
The story of Ant Group and it’s terrific growth is one that mirrors that of the Chinese economy. While Western fintech firms have focused on innovating along the edges of financial services, Ant Group has been able to innovate widely; leapfrogging established financial institutions.
Western fintech firms have just begun to bundle services that had been unbundled in the past. Ant Group’s strategy is well beyond that.
A spokesperson for Ant Group told The Guardian, “The idea is people are living their lives through this platform.”
Imagine SoFi or JP Morgan having such ambitious strategy.
Intent to Switch Banks Doubles Post-COVID
The pandemic has had a lasting impact on banking customer behaviors, particularly the increased adoption of digital. It seems that hasn’t been the only impact.
According to a study by Foresight Research:
“22% of (banking) customers and members report that they are ‘extremely or very likely’ to switch their primary financial institution in the next year or two.”
This intent to switch has grown from a pre-Covid level of 12%.
Steve Bruyn, CEO of Foresight Research notes in an article in The Financial Brand:
“During the pandemic expectations were much lower — not surprising considering that many customers and members realize the problems are caused by the virus, not the bank or credit union.”
So why the increased desire to change? Bruyn continues:
“It was all about financial issues, not the banking experience or access. The switchers, while forgiving, also are looking to reduce cost or increase interest on items like money market accounts, CDs, personal loans, etc.”
Steve Cocheo, in another Financial Brand article, seems to confirm that product characteristics is driving customer satisfaction or lack of it during the pandemic.
According to a study by Verint “among the top U.S. banks” the biggest factors of bank satisfaction are: “products offered — meeting consumers’ needs, offering flexibility and with clear terms. It ranked most highly in importance in every banks’ rating.”
Eric Head, Vice President of Verint Experience Management is quoted:
“in the two decades that the company has been doing its survey this was the first time that one aspect of the consumer evaluation has so consistently stood out as the top driver.”
This focus on product makes sense as economic uncertainty settles in for most consumers. The likely switchers, however, aren’t equally distributed among the consumer population.
According to Foresight’s Bruyin:
“Of the people who intend to leave their financial institution almost three out of four were Gen Z or Millennials — the very block of business that drives the future of your financial institution. And overwhelmingly they are men.”
What are FIs to do? Verint suggests better communication about products and services offered.
“Head suggests that better educational content on institutions’ site and on their apps could help explain capabilities.”
We annually analyze bank and credit union websites, and every year we report a critical need for better and more engaging content.
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