In perfect free markets, credibility would trump visibility every single time. But online consumer markets are not perfect, and nor are they free. And online consumers tend to mix visibility with credibility. Market forces run the risk of getting skewed from the ‘Fin’ part to the ‘Tech’ side of FinTech, i.e. the credibility required to build a successful and sustainable financial services company runs the risk of being trumped by the visibility and growth-at-any-cost approach of many successful tech companies.
It’s a mistake we’ve all made.
Our subconscious remembers seeing that brand on a billboard, in a piece of newspaper advertorial, as a promoted result in Google search, and so it draws our preference – and leads us to equate familiarity with ‘trust’ and ‘credibility’. It’s the essence of how advertising works.
This effect is so powerful that it can override our good sense. Even with plenty of information about the brand or company’s lack of credibility, we still choose to ignore all the facts or not dig deep enough to find out more about the company’s lack of credibility.
That’s what makes the job of challenger banks so difficult and exciting. Banking customers are particularly notorious for two things: moaning about the bad service they get and sticking to the same old bank. I know challenger banks could well offer a much better alternative, and they focus on treating the customer as one would expect to be treated – but I haven’t bothered changing banks yet. It’s been on the cards for years and admittedly it has never been easier to change, but I somehow still haven’t got around to it. So I too subscribe to the group that moans, but does nothing to get a better deal.
Alternative finance suffers the same fate. The first platforms to hit the market in each segment have enjoyed a self-reinforcing status whereby they get covered more in the media, have larger marketing budgets and have much greater visibility. However, there is a very important difference in alternative finance. Consumers (i.e. investors) are in it for measurable financial return. While short-term growth is the result of marketing budgets and the visibility it creates, alternative finance platforms’ long-term prospects will be heavily based on ‘credibility’. Early adopters are unlikely to forget, ignore or accept overall financial losses that go beyond the normal course of business as part of portfolio risk.
In the long run, alternative finance and its respective platforms will thrive on the basis of demonstrated success. It will be the credible platforms, which treat their customers as their best brand ambassadors, and not the ones that shout loudest that will come out on top.
Platforms that ignore their customers will be busy with the expensive ongoing task of recruiting new customers, whereas platforms that put their customers first will not only benefit from repeat investments from their existing customers, but their reputation will attract a stream of new investors.
So, will free, perfect markets trump marketing expenditure in FinTech? I certainly believe so. People’s preference for specific consumer products, such as craft beer, is largely a subjective choice, easily influenced by brand awareness; however, financial returns can and will be objectively measured. Ultimately, the platforms that provide the best returns will succeed at keeping their existing customers and recruit new ones.