Banks may be vulnerable to fintech innovators, but opportunities are also emerging – marrying humans and AI will be key to success

In the last decade, there has not been an innovation in banking that is not also a technology innovation.

whether it’s digitizing mortgages or opening a new account on your mobile phone, the future rests in the twin forces of consumer and technology revolutions where the former causes the latter.

It is normal to think that technology drives new consumption solutions, but in reality it is an increasingly less patient consumer who demands more and better technology to meet their needs. This means that those who innovate the fastest win the most.

Banks therefore need to get comfortable with something that is at odds with their makeup. They have to hand over a lot of creative power to fintech firms to reach their customers quickly.

We often think of banks as a single ‘thing’. But in fact, they are the final form of different systems that come together under one umbrella. Among these elements are culture and people. These will remain key differentiators into the future no matter how technology evolves.

So while lenders are definitely at risk from fintech innovators, they also have opportunities to win.

Incumbent banks are at risk from challenger banks such as N26 and Revolut, which have captured a large clientele in a short time. Although to date these businesses offer a “second account” for many people, they will eventually transition to primary accounts as they sign up.

But it is not the only way. Avant Money came to Ireland with nothing. Yet two years later it is moving towards double digit share of the mortgage market, having used a combination of intermediary distribution along with technology to match their great products and prices.

Irish banks are at risk from the transition to intermediary-driven solutions along with technological innovation. The idea that financial intermediaries will be a thing of the past does not hold up.

On the contrary, mortgage brokers have doubled their share of the market in recent years and now half of all mortgages are sold through that channel.

In the insurance market, it has always been the majority despite the push for direct-to-consumer solutions. In fact, the buyers of the largest brokerages are often the insurance companies themselves.

The most innovative solutions have come through intermediaries. Tracker loans, for example, entered the Irish lexicon via intermediaries selling Bank of Scotland loans, as did the first super long-term fixed rates from Finance Ireland last year.

The indirect path to success is really about segmenting a market and a channel into what a company can do best and then focusing on just that one thing. Can you open branches, handle all kinds of bank account customers and still be the best mortgage provider on the market? Maybe, but for how long?

Greater focus on doing just one thing well is proving to be a financial force, but that doesn’t mean there won’t be a “bundling” of solutions where several market heroes come together in a synergistic way.

The branch will be replaced because more and more banking services must be available quickly, seamlessly, online and anywhere.

Even getting something as complex as a mortgage will only require a mobile device and some time.

Yet, paradoxically, this means that banks will need motivated and skilled customer teams, because technology’s only flaw is that it drives people crazy when they can’t find what they want or shop digitally. AI-powered conversational chatter is sure to become more widespread, but strong teams of real people will remain the last holdout and the key differentiator between successful banking brands.

Financial companies need a strong sales force (which is the indirect channels that intermediaries represent) together with strong technology (which is what the fintech companies offer) to succeed.

Whatever is “new” in banking in the future will probably be something a fintech company solved and an intermediary sold. The speed of development in a bank just cannot keep up, so it makes more sense to buy solutions.

One day you’ll be able to get a mortgage with a phone, a fingerprint and a download of your bank details. It’s coming faster than you think. The pandemic accelerated the adoption of digitization at a rate of one or two years of adoption for every month of shutdown.

In the long term, it may even become a “supermarket” with several banks where branch services for various institutions will be gathered under one roof. It makes sense that it’s smarter to pay to be in this “club” than banks running redundant, unprofitable branches across the street from each other.

The future is coming at a speed few could have imagined just a few years ago. That applies to financial services as much as it does to more obvious “technology” like self-driving cars.

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Karl Deeter is CEO of the mortgage brokerage platform OnlineApplication.com