Disruption is the New Black: Fintechs and Megabrands

Sep 16, 2022

COVID-19 has left a lot of companies trying to figure out who their customers are amidst a changing sea of preferences, motivations and behaviors. Firms have been left with the difficult task of rethinking their loyalty marketing strategies so they can focus on rebuilding and re-establishing prior customer loyalty. While the pandemic had been the focus of attention over the past 2 years, for financial institutions, there have been other disruptors working to undermine and replace the relationship traditional banks have with their customers: enter Fintechs and Megabrands.

The Rising Tide of Fintechs

Fintech companies use new technologies to address the financial needs of customers in convenient and streamlined ways that typically involve contactless payment applications, a mobile first mindset, and a simplified brand strategy. While many companies were focused on survival amidst a global pandemic, smaller, more nimble organizations were able to fill niche roles for banking customers, fundamentally shifting the customer’s perceptions of what it means to do business with a financial institution.

The popularity of Fintechs and challenger banks continues to rise in the banking industry as now 42% of US households have at least one fintech account/service that they use. Recent research has shown that the pandemic has not amplified this growth as much as many thought it would have, but it has not hindered it either.

According to research, while Millennials and Gen Z are consistent adopters, 26% of Boomers indicated they have opened a Fintech account as well. Fintechs are also targeting the affluent and the under-banked as most of the recent adoption of their products and platforms have been in those two segments of customers. This split focus further highlights a bank’s need to better understand how their own base of customers has shifted and changed or risk the erosion of those relationships at the hands of Fintechs.



While Fintechs are more obvious disruptors to the financial services industry, Megabrands like Apple, Walmart, and Amazon have also been able to gain traction because of how involved they are in customers’ daily lives. On the surface, it may seem crazy to think consumers would use Megabrands when it comes to their financial needs. But the reality is that these brands have worked hard to create an affinity with their customers that goes beyond the transaction and towards the relationship end. Whether these brands are launching a new, competitive card product or considering establishing their own banks or closed-loop payment ecosystems – there’s no denying that they have strong brand affinities, are becoming increasingly enmeshed in a customer’s daily life, and are sitting on tons of data.

Apple customers have a strong affinity with the brand, and because of this, when customers are asked to adopt new technology from Apple, they respond. So when Apple adopted a credit-card-based loyalty strategy that rewards consumers for their use of distinctly Apple features (like the digital wallet which is gaining traction in the payments stream), they further changed and cemented new customer habits that impact how those customers perceive interaction with traditional banks. With the Apple credit card in the digital wallet and a daily cash card that is functioning like a debit card, Apple is setting up its own payments ecosystem, and more importantly, working to be the payment vehicle of choice.

Walmart is another Megabrand that is engrained in the day-to-day life of their customers that affords them additional opportunities to change the dynamics of the relationship. In an attempt to fulfill the payment and financial needs of their customers who traditionally have been under-banked, Walmart offers the Walmart credit card, the Walmart Money Center, Walmart Services, and Walmart Pay. Each one started as a traditional retail services offering for their demographic – installment pay, financing, money orders, money transfers, and more recently contactless payment facilitated by mobile wallet sign-up. Now that they are rolled under a single end-to-end shopping experience, this combination is something to consider as it may undermine the relationship traditional banks have with their customers.

Perhaps the biggest potential threat these Megabrands pose is the vast amount of information they are able to gather about their customers that allows for “easy learning” even when their behaviors radically shift. With this customer knowledge, Megabrands can identify and create new service offerings that could easily serve to disrupt the traditional banking relationship.

It’s Always Been a Matter of Trust – Especially Now

 Traditional banks have long relied on the trust defense to ward off new financial institutions entering the market or those Megabrands seeking to be more things to the customers they serve. However, that trust is eroding. Two of the most troubling statistics for traditional banks that emerged from a recent research* report are that the number 1 reason for considering a traditional bank over a Fintech or challenger bank was trust (30% of respondents), however, a similar share of respondents (27%) said they trusted Fintech companies more than traditional banks when responding to the same consideration question.

This means that trust is no longer a competitive differentiator.  Furthermore, when you consider the fact that Megabrands have the frequency of interaction and affinity with their customers, it is not hard to see traditional banking customers try to get their financial services needs met elsewhere. So, what can a traditional bank do to combat this new crowd of disruptors?

  1. Use Your Branch as an Asset

One of the ways your customers have likely changed is that they will come out of this pandemic relationship starved. They will be looking for human interaction. Traditional banks can use their physical branches to deliver on that need. The nature of the branch experience may need to shift depending on how your customers have shifted, but it still represents an asset that can be leveraged.

  1. Build a “Trust Strategy”

Traditional financial institutions should build a “trust strategy” that meets their customers where they are today, recognizing that they are not the same as they were before.  Banks should look for ways to reaffirm and reify trust among their most loyal customers as a first step to rebuilding the relationship. This is especially crucial given Fintechs receive higher marks on ease of use, convenience, rates, prices, fees and the digital experience.

  1. Embark on a New Journey with Customers

Yes, your customers are different now that we are emerging from 2 years of a global pandemic.  The onus is on traditional banks to better understand how their customer make-up has changed.  Understanding is just the first step.  Finding new strategies to address those changes and new audiences for those strategies will only help banks achieve some level of insulation from new disruptors that keep entering the marketplace.

Contact us to discuss how a trust strategy can affect your customers.

*McKinsey Research: https://www.mckinsey.com/industries/financial-services/our-insights/how-us-customers-attitudes-to-fintech-are-shifting-during-the-pandemic