Image: Clay Banks on Unsplash.
Fintech has the potential to disrupt the entire banking industry by making services more convenient and secure. The need for these services became even more apparent during the COVID-19 pandemic, as people opted to conduct most activities online. Currently, there is no shortage of promising startups in the industry – but there are some that already stand out.
One of these is Vivid Money, a new Berlin-based challenger bank founded by two ex-Tinkoff Bank executives that is supported by solarisBank and Visa.
A wakeup call for traditional banking
Despite notable improvements and higher rates of digitalization in the financial sector, many customers still receive no or even negative interest rates for their bank deposits and high transactional costs. The poor quality of many services, as well as bureaucracy and confusing guidelines, continue to hamper the banking experience for customers worldwide. The differences in banking systems from country to country further complicate cross-border services and transactions.
But retail banking has been shaken up by consumers’ increasing demand to pay digitally – through mobile and contactless payments. Currently, nearly 70% of the payments that Citigroup handles for customers in China are conducted through AliPay. Most recently, Credit Suisse announced that it is expanding its mobile payment options for credit card clients by offering Google Pay in addition to existing mobile payment options. More studies show that 48% of financial organizations worldwide have embedded fintech into their operations and 75% are creating jobs related to fintech.
The pandemic is likely to accelerate the transition to digital services. Past experience shows that the SARS epidemic in 2003 hastened China’s launch of digital payments and e-commerce, while the financial crisis of 2008 is largely responsible for accelerating the transition to fintech. Given the massive scale of the current disruption, the boost to fintech may be even greater due to the prolonged natute of the lockdown, as well as the unprecedented depth of the economic slump.
A recent report by Boston Consulting Group shows that, post-COVID-19, 25% of consumers plan to cut down on their use of bank branches or stop using them altogether. Another customer survey indicates that 55% of U.S. consumers are worried about handling cash, while about 75% said they plan to continue using contactless payments even after the pandemic. Because the virus will likely stay with us into the next year, hygiene concerns might add additional impetus to digital services.
Such changes might not be enough to fuel a complete digital transformation of the sector, however. For instance, Monzo Bank Ltd. faced a valuation drop in its latest funding round that valued it at roughly £1.25 billion, nearly 40% lower than the more than £2 billion valuation it secured at its previous fundraising in June 2019. Nonetheless, the latest shifts reflect the increased popularity of fintech services. A recent PwC survey indicates that consumers are prepared for the digital shake-up, and the question is no longer whether fintech will transform traditional finance services, but which firms will do it the best.
The Vivid approach
As one of the emerging leaders, Vivid strives to help customers to make the most of their money by merging together the all-in-one mobile-first approach with a full-service package. The platform enables users to organize their own financial preferences in one app that is individually tailored to their demands. This allows users to grow their wealth without opening separate accounts with different providers for each service, and offers them cashback incentives, sub-accounts in major foreign currencies, and, soon, investment services.
In one example of its incentives, Vivid offers 10% cashback for visiting the same bar or café and spending more than any other user of the platform during a two-week window. This scheme offers a powerful alternative to traditional cashback options and capitalises on the growing trend towards supporting local business in the wake of the pandemic.
The app further allows users to open their account for free in just a few minutes and manage their finances via a mobile device in a very accessible and simple manner. Every user also gets a free anonymized metal Visa debit card for secure payments and cash withdrawals.
Building on the best
Rather than starting from scratch, the startup is building its product on the experience of well-established companies. SolarisBank provides banking services as APIs to other fintech companies, as well as a stable and well-functioning banking infrastructure. Meanwhile, the power of the Visa brand supplies the banking platform with a solid competitive edge that will spearhead future growth.
Vivid’s founders also draw from their previous experience at Tinkoff Bank, which pioneered the branchless bank model in Russia. Tinkoff’s digital-only approach proved particularly resilient during the time of stay-home policies by enabling employees and customers to conduct most of their activities online. Meanwhile, the bank’s mobile investment service surged in popularity to host the largest number of retail investment accounts in Russia, as amateur investors flocked to the market during lockdown. The safety and convenience of online banking services became a main draw for customers during the pandemic, and promises to continue attracting customers to fintech services in the post-COVID economy.
As customers flock to digital banking in the wake of the pandemic, the launch of Vivid Money and its mobile-first Visa debit card has come right on time. Although the company operates exclusively in Germany for now, the joint product offering by Visa and solarisBank may facilitate the firm’s eventual expansion across the EU and beyond. The diverse and accessible options offered by fintech outfits like Vivid have the power to not only transform the customer experience, but to revolutionise the banking industry as we know it.
