Surviving the FinTech Apocalypse: 3 CX Rules for Retail Banks

There's a company in Texas selling prefab doomsday bunkers at $400K a pop, with nuclear blast hatches, gun vault doors, escape hatches—the works. Whether you share their clients’ concerns about societal collapse, there’s no denying that an actual doomsday event would require a very different set of tools to survive. Think less Uber Eats and more canned preservatives.

Because that’s how the Apocalypse works. There’s some major catastrophe or a chain of events that wipes out the status quo and forces a total reset on the rules. This is happening right now in retail banking.

After a decade of FinTech disruption, the financial landscape has changed dramatically—and so have customer expectations. For retail banks, survival doesn’t just mean responding to lean, scrappy challengers, but adopting to the post-Apocalyptic world. In this post, we’re taking a look at three CX rules required for financial institutions to compete.

Let’s jump in!

Change or die

In 2021, Jamie Dimon—Chairman and CEO of J.P. Morgan—warned shareholders that intense competition from FinTech “diminishing” the role of banks.

He wasn’t wrong.

The thing is, to endure harsh climates, you need a very specific set of tools—no one is bringing desert gear to Antarctica. So, let’s start with a quick lay of the land and what it actually takes to survive. When it comes to the FinTech Apocalypse, we’re looking at a deeply fractured financial landscape that operates under a whole new set of rules.

Rule #1: Seamless digital experiences are non-negotiable to banking customers.

Consumer platforms like Netflix, Amazon and Spotify have dramatically influenced customer expectations for digital interactions. It’s not just about slick interfaces or bug-free apps. We’re talking hyper-relevant offerings and proactive personal recommendations wrapped in one cohesive, delightful and intuitive digital experience.

Chew on this

• 61% of banking customers want personalized recommendations
• 62% of FSI customers would switch providers if they felt treated like a number, not a person
• Half of banking customers who switch providers do so because of digital experience (compared to 29% insurance customers)
• 72% of customers rate personalization as “highly important” for financial services.
• Financial brands that deliver a better customer experience (CX) receive twice as many recommendations and their customers are 2X more likely to try new products or services.

Just look at the surging popularity of embedded finance, which Bain Capital predicts will make up 10% of total financial transactions by 2026—a $7 trillion market.

This is no coincidence. It’s a reflection of the instant gratification era, where customers demand value in as few steps as possible. Why yes, I would like to insure this $10K geothermal power generator for my nuclear bunker before I check out—thank you Best Buy!

Rule #2: Traditional boundaries are gone.

FinTech is now firmly planted in retail banking territory. Free from exorbitant overhead—branch and contact center networks comprise roughly 40% of retail banks’ costs—startups are luring customers away with highly competitive products like zero-commission brokerages and high-yield savings accounts.

This isn’t exactly a new development. A few years ago, CB Insights described the great “unbundling” of the American bank, with legions of disruptors chipping away at core banking functions and offerings. The trend has only accelerated—the global fintech industry has nearly doubled its revenue since 2017 and there are currently almost 30,000 fintech companies worldwide.

However, it’s not just fintech startups ignoring traditional borders, but the tech world at large. Apple’s “walled garden”—the tightly controlled ecosystem spanning hardware, software and services—has integrated a suite of financial products to ensure smooth integration and compatibility for their customers. In 2019, Apple partnered with Goldman Sachs to launch Apple Card, which swelled to 6.4 million cardholders within two years. There’s also their digital wallet—Apple Pay—and BNPL service Apple Later.

Amazon has similarly encroached on banking country, although their initial foray came from the commercial end. In 2011, Amazon launched Amazon Lending to offer merchant loans—receivables hit $1.3 billion by the end of 2023, shortly before the company announced it would cease underwriting.

However, Amazon has also challenged retail banking products with their own digital wallet, Amazon Pay, and the now defunct Amazon Cash, which enabled customers to add money to their Amazon balance at over 30,000 participating grocery, drug and convenience stores. Brain previously estimated that an Amazon banking service could swell to 70 million US consumer relationships within five years.

A slew of retail banks have responded to the advancing competition by slashing overdraft fees, a hefty revenue stream. In 2019, overdraft and non-sufficient funds (NSF) fees generated over $12 billion per year in the U.S. alone. This hasn’t made a difference—not really. While national banks saw a slight increase in customer satisfaction in 2023, better rates have continually driven customers to alternative providers:

• 50% of national bank customers in the U.S. have a secondary deposit account with an Internet-only financial institution.

• The majority (77%) of consumers using a traditional bank say that they keep some of their funds elsewhere.

We’re now living in the age of silent attrition, where customers retain their primary bank accounts while hauling their deposits to higher-yield pastures. Which brings us to rule #3…

Rule #3: Customers are loyal to no one.

The vast majority of customers (90%) prefer to manage their money in one place. Retail banks—with their wide array of options and “one-stop-shop” convenience—should be a no-brainer. Yet the average consumer uses six financial products, only half of which are with their main bank.

This hardly seems ideal, but when you think about it, customers don’t really have a choice. In addition to higher rates, the storm of fractured insights behind the scenes at retail banks makes it impossible for customers to enjoy a consistently relevant, effortless and integrated experience on the other end.

While FinTech has swooped in with smoother apps and more competitive pricing, startups can’t offer the same scope of products and services. Subsequently, customers have been forced to duct tape together their own end-to-end, top-to-bottom ecosystem for personal finance, using a mishmash of products and services, which they’re continually enhancing and expanding.

No matter how you slice it, customers have higher standards—and more choices—than ever. Adapting to this new reality is critical for retail banks to keep up with disruptors, especially when it comes to CX.