Friend or foe? What happens when established financial organisations meet startups

11 Dec 2017

  • Innovation
  • Leadership

By: Brooke Hemphill for ADMA

The financial services industry is a hotbed of disruption but instead of viewing the entry of new players into the space as a case of ‘us’ versus ‘them’, the smart operators are welcoming and learning from the competition.

“It's great to have new organisations coming in because it keeps us on our toes. It forces us to continually relook at what we're offering and think like a startup,” says Trudie Newcomb, Vice President, Acquisition, Early Engagement and David Jones Strategic Alliance at AMEX. “At the end of the day, we're all serving a customer need and if they're coming in to serve an unmet customer need, I think that's a great thing.”

Trudie Nwecomb

Trudie Newcomb, Vice President, Acquisition, Early Engagement and David Jones Strategic Alliance at AMEX

Meeting unmet needs, and the digitisation of services, are at the heart of disruption in the sector. The perfect example of these two factors coming together is Afterpay. The business, which launched in 2014, is the brainchild of 27-year-old Australian entrepreneur Nick Molnar and digitises the old-fashioned system of layby which saw shoppers pay off goods in installments.

"What we're really doing is replacing the bank of mum and dad, helping small businesses that would have had to go under or wouldn't have been able to grow"

“They've grown their footprint quite aggressively and quickly. They've really identified an unmet customer need and it highlights how we need to do a better job of promoting what we can bring to the table in terms of our own short-term lending capabilities,” says Newcomb.

Afterpay demonstrates the opportunity for new services in the lending space. Another business tapping into this is small business loan provider Prospa. The five-year-old company has recently reached the milestone of issuing 10,000 loans to small business owners to the tune of $350 million. “We're on a mission to change the way small business owners experience finance,” says Anna Fitzgerald, senior marketing manager at Prospa.

Anna FItzgerald

Anna Fitzgerald, senior marketing manager at Prospa

While it may appear Prospa is playing in a space traditional banks have long owned, as Fitzgerald points out, there has long been an unserviced customer base.

“There is something like 2.1 million small business in Australia and traditionally, banks have not lent to that sector because they didn't have the risk appetite for it. What we're really doing is replacing the bank of mum and dad, helping small businesses that would have had to go under or wouldn't have been able to grow,” says Fitzgerald.

"I don't think the amount of time that you've been around is necessarily going to give you an advantage – it's the culture you develop and the way you innovate as an organisation."

By tapping into a client base banks have been unable to service opens up the opportunity for a partnership between the startup and traditional financial organisations. Accordingly, Prospa has forged a partnership with Westpac.

“We're running a pilot program so that when they're unable to help a small business customer because they don't have a product that suits their requirements, they refer them to us,” explains Fitzgerald.

As Net Promoter Scores for traditional banking organisations continue to languish in the negative digits, Fitzgerald believes banks can benefit from teaming up with startups such as Prospa which is seeing NPS ranging from 30 to 70, even in instances when the loan application is not approved.

“The two key things we offer are speed and simplicity,” she says.

“Our application process is much faster and more simple than the amount of paper that you need to go through when you apply for a loan with a bank. We don't require a business plan.”

For traditional financial organisations to thrive in this changing market, AMEX’s Newcomb believes innovation and culture are key. She says: “I don't think the amount of time that you've been around is necessarily going to give you an advantage – it's the culture you develop and the way you innovate as an organisation. The challenge for bigger organisations is how they can implement that same philosophy and how they can use a larger organisation to do that, which in the past, has typically been more difficult.”

Newcomb cites AMEX’s quick uptake of Samsung Pay, Apple Pay and Android Pay as case in point with the organisation the first credit card issuer in Australia to offer all three services to customers. She adds: “The business has been able to pivot and look at how we can use new technologies and understand how customers needs are changing as we look to be in those spaces as well.”

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