Customer loyalty warning for banks

Banks risk becoming just a funding source unless they fend off the threat to their customers from tech giants, a fintech chief says.

Banks are not addressing topics of technology investment, customer loyalty and retention, a fintech chief says.

Banks risk “becoming commoditised” as just a funding source unless they act to fend off the threat to their customer relationships from technology giants such as Apple and Amazon.

That is the view of David Link, founder and chief of fintech Verrency. He believes a large proportion of banks globally — including in Australia — are not addressing topics of technology investment, customer loyalty and retention.

“Banks are struggling to address this issue,” he said, noting it often related to legacy systems that were decades old.

The global consumer and technology giants “are acting much faster and they don’t have the legacy infrastructure”.

Verrency, founded in 2016, created a platform that works with banks’ existing payments systems to provide services such as auto-rounding, including for donations to charity, real-time budgeting notifications and instant loyalty rewards.

It has signed up local digital bank Volt as it rolls out products this year and has secured contracts with several other local fin­ancial institutions, whose names it will not disclose. In offshore markets it counts a top five US bank, Colombia’s Banco Davivienda and UAE-based Emirates NBD’s lifestyle digital bank for millennials among its customers.

Locally, though, Commonwealth Bank has already implemented its own customer loyalty system via merchant terminals. It allows redemption of credit card points directly at some retailers and other functionality.

Westpac has started a pilot customer loyalty program in its retail bank, while Suncorp has a scheme that leverages off its commercial relationships to offer its customers discounts at retailers.

But Mr Link, a former Accenture managing director and current global advisory board member of Ripple, believes it is at the point of sale that consumers become more “sticky” and banks need to be alert to relationships eroding.

“Banks have to get creative now, because as customers we are becoming more mature,” Mr Link said.

“Consumers are gravitating towards experience-led banking … We enable banks to essentially supercharge their system.”

Verrency also has a marketplace that allows banks to connect to a fintech ecosystem of 30 partners including charity platform GoodWorld and BrickX, which allows investors to buy a share in a property.

Mr Link’s view does align with that of analysts at Morgan Stanley who have highlighted a big threat to Australian banks from the use of digital wallets offered by technology giants.

Morgan Stanley estimates the big four banks risk losing $22 billion of industry revenue unless they have compelling technology to keep customers.

That warning comes as global card networks Visa and Mastercard also consider ways to boost customer loyalty.

Mastercard last month talked up its Innovation Engine, a platform that provides a “simplified path to rapidly deploying digital capabilities and experiences”.

Visa Next’s website says it will offer “instant-issuance capabilities and digital-ready processing” from a network of partners.

Mr Link is not fazed, though, by other rivals looking to replicate Verrency’s proposition.

“It would still take them a very significant amount of time,” he said of potential competitors.

Verrency — which has so far conducted three raising rounds to help fund global expansion and make its contracts live — has just ruled off a Series A $10 million raise, taking total capital inflows to more than $20m.

The latest raising was backed by Singapore-based Voveo Capital, which counts Grow Super among its investments, and local firm Alium Capital. It is understood Peter Hodgson, formerly chief of the Myer Family Company, also tipped in capital.

Next up, Verrency is planning a Series B raising across the US and Singapore and has hired advisers to target US$20 million ($28.7m).

On whether an initial public offering is on the medium term horizon, Mr Link says: “From where I sit it is way too early.“

Melbourne-based Verrency has four offices and more than 30 staff.