Economist Wouter Landzaat: Collaboration between banks and fintech is key to develop better services

ARYZE spoke with Wouter Landzaat, a behavioral economist at London Economics, to discuss the competition between traditional and modern finance, where collaboration should emerge, and how to make fintech solutions mainstream.

From the London Economics offices, Wouter Landzaat researches the many financial developments taking place today. The economic consultancy firm works within the highly competitive industry of London, where it makes sure to provide their clients with top quality advice. Here, Landzaat works as a behavioral economist, and his areas of expertise range from circular economy to competition, to consumer vulnerability, to regulation and data protection. What interests him most is to capture the great unpredictability of human behavior and challenge the theories: 

Behavioral economics goes beyond the constraints and assumptions we impose on traditional economics. In economics, we often make assumptions to make the math work out more easily, and most of the time this works perfectly fine. However, we know that people do not always act like economists would like them to act. Behavioral economics helps to understand where the traditional framework holds up well, and where the framework has to be challenged.

Understanding human behavior is crucial for companies to create real value for their customers. By tailoring products to the specific needs of their clients, among other things, businesses are able to maximize their profits and refrain from wasting resources developing the wrong services. For banks specifically, avoiding mis-selling also enables regulators to maintain a more hands-off approach, which is beneficial to the industry as a whole.

However, over the years it has proven challenging for traditional banks to keep up with the rapidly changing demands of customers. With the rise of many fintechs worldwide stepping in and disrupting the financial industry, value propositions are becoming more innovative in meeting new customer demands.

Landzaat adds that, if fintechs are to become mainstream, they should ensure that they solve problems that actually need solving and that their offer is worth its price. He believes that fintech companies have a great potential to solve issues that traditional banks have a hard time responding to due to their lack of agility. However, to make these solutions successful, Landzaat emphasizes the importance of transparency and trust:

Trust is key when it comes to financial transactions, and banks are generally considered to be among the most – if not the most – trusted institutions around. FinTech companies have to compete against this established trust.

When it comes to FinTech, I believe that transparency is an important environmental factor. Behavioral economics tells us that the environment in which people make decisions matters immensely. Providing transparency allows your customers to check what you are doing so they can convince themselves that you are trustworthy.

By building trust with customers, fintechs can leverage their competitive advantage and gain greater traction.

Somerset House in London, where the London Economics offices are located

Furthermore, collaboration in the market is also a must. From a traditional point of view, competition is always welcome, Landzaat argues, as it keeps traditional banks honest and challenges them to keep up the quality of their service. However, collaborative efforts between traditional banks and fintech solutions could lead to new, better services, making consumers better off in ways that competition cannot achieve.

Banks usually possess data that fintechs need to develop their products and in turn, fintechs are able to add value through enhancing traditional financial services. The challenge emerges for banks as innovative solutions may lead to more competition. For example, the impact that comparison websites have on traditional established companies is potentially huge. Despite the challenges imposed, collaboration is key to improve solutions. Landzaat says:

Competition is needed, but collaboration should be encouraged for the sake of developing new services. Where banks are unwilling to collaborate, there is a good case for the legislator and regulator to step in. In fact, they have already done so. The revised Payment Services Directive (PSD2) of the EU, for instance, already put in place the legal and regulatory frameworks to get banks to at least share data with FinTechs.

With collaborative efforts, both parties could benefit and enhance the financial industry. The key here is that both traditional banks and fintechs are transparent and maintain trustful relationships with their customers. People look for companies that can prove that they stick to their principles and values, in good times and bad times. When a company succeeds in doing so, customers will be likely to trust their product offering. This will enable innovative financial solutions to become mainstream and allow for more efficient and accessible economic activity.

To learn more about Wouter and London Economics, please visit their website. For more information about banking, fintech, and future payment solutions, please visit the ARYZE website, or check out other articles on our blog.

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