In the 1982 comedy film Dead Men Don’t Wear Plaid, the main character (played by Steve Martin) becomes deranged every time he hears the phrase “cleaning woman”. In real life, Fidor Bank founder Matthias Kröner admits he has a similar response to the term “traditional banker”. He’s not alone, which is why Fidor’s innovative approach to serving customers is growing in popularity.
At the heart of Fidor’s business model, and therefore what sets it apart from traditional banks, is its use of social media. What does it use social media for? “To listen,” says Kröner. “Traditional banks think that social media is an additional channel for shouting out their mediocre messages. It’s not. Call it Facebook, Twitter, your own community − it’s a channel for listening,” says Kröner.
Traditional banks think that social media is an additional channel for shouting out their mediocre messages
Founded in 2009 in the middle of the financial crisis, Fidor has built an online banking community with about 160,000 users who offer peer-to-peer advice on saving, investment and everyday financial problems. What’s more, online users are also encouraged to come up with innovative ideas to develop and improve the bank’s products and services.
First and foremost, Fidor is an online bank with a full banking licence in Germany, offering mainstream retail and corporate banking products. Although the scale of the business is small, with deposits of €78.1m and lending of €63.9m at the end of December 2011, it has big ideas and a distinctive approach.
For example, customers sign in to their accounts via Facebook Connect, from where they can see all their savings and investments. One benefit of this is that the bank has been able to link the interest rate of its FidorPay checking account to the number of ‘Likes’ on its Facebook page. The interest rate starts at 0.5% and rises 10 basis points for every 2,000 ‘likes’ up to a maximum of 1.5%. At the end of every year, the interest rate resets to 0.5%.
But it is not gimmicks that lie behind the growth of the bank, according to Kröner. “When we ask customers why they use Fidor, they don’t say, ‘Hey, it’s so cool to be on Facebook’, or ‘I love my smartphone so much and you’re on there, that’s so cool’,” says Kröner. The reason they like Fidor is that it comes up with ways to make their digital lifestyles more efficient because it listens to what they say they want, he says.
A Trusted Community
So what do customers tell Fidor they want from a bank? “A customer-centric, honest, transparent and fair service,” says Kröner. “There is a feeling of distrust towards banks among all customer groups − retail and corporate. People feel they are not operating in favour of the customer, but only in favour of the bank. Social media is the perfect tool to bring trust back to banking,” he says.
Take, for example, the process of buying a house and arranging a mortgage. With an online community, you can contact peers for advice about the right questions to ask. You can listen to the experiences of other customers. You can see how financial advisers have been rated by customers. You can seek advice 24 hours a day. Most importantly, what you don’t get is a sales pitch.
This approach doesn’t just appeal to web-savvy younger customers but anyone who’s fed up with being ignored or ‘sold to’ by a traditional bank, says Kröner. Fidor’s youngest customers are 18 (the minimum age allowed) and its oldest customer is over 80. The online forum is a place to discuss big issues, such as the price of gold and the future of the euro, and to ask practical questions about how to find a particular service on the website.
People are interested in talking about finance like other aspects of their lives
Customers clearly value the ability to exchange views with their peers and to tell management what they think of its services. When I speak to Kröner, there are 1,949 product ideas and improvement suggestions on the website; there are 4,666 ratings of financial services advisers; 2,638 ratings of products; and 4,162 pieces of advice about how to cut personal and household costs and save money. Typically, each question gets approximately six answers.
As an added incentive to participate, customers are rewarded for being active in the community via a bonus system. For example, a user gets 10 cents every time they ask a question and 25 cents for offering advice to other users. And if they make a product suggestion that gets picked up and accepted by the bank and the community they can receive up to €1,000.
But financial incentives are not the main driver of activity on the website. “People are interested in talking about finance like other aspects of their lives. It’s just that many bankers are not interested in listening to what they have to say. The biggest problem in this industry is not a technology problem, it’s a culture problem,” says Kröner.
Fidor has only 38 staff so there is no room for hierarchy, and management is expected to be present online. So what does Kröner look for when he’s hiring staff to work at Fidor? “You must have an affinity for social media, an understanding of IT issues and a willingness to interact with customers,” he says. “The golden rule is buy attitude and train skills. Traditional banks buy skills and do not train attitude, but the accumulation of skills did not avoid the crisis.”
An understanding of social media is not much use to a bank without an equal understanding of how to provide efficient digital services. Fidor has both. An important element of its success has been its FidorPay system, which allows customers to use a pre-paid account to pay for an increasing range of digital services using real or virtual currencies.
Having formed partnerships with other specialist online platforms, Fidor customers are able to trade in precious metals, and take part in peer-to-peer lending, crowdfunding, online gaming and betting, all via their FidorPay accounts. “All innovation on the web is coming from the outside, not inside banks. If the banks had been on top of things then PayPal would not exist,” says Kröner.
Kröner says traditional banks are now waking up to the fact they need this kind of technology and are asking Fidor to provide it for them − their own product development pipelines are full up to the end of 2015, he says. This growing demand for payment technology has led to the creation of Fidor Tecs AG, a stand-alone business that will sell technology to and serve big corporate customers.
As for the future of Fidor’s banking business, Kröner says it has not been easy operating as an entrepreneurial team, but there has never been a better time to build a new bank. “It’s like setting up an organic restaurant in the middle of a horsemeat scandal,” he says. As evidence, he points to the vote of confidence from private equity firm JZI, which became a 25% stakeholder after a capital injection in April.
Traditional banks have a long way to go to win the trust of customers, and social media remains a unfamiliar sphere for many. One thing is clear, until banks find a way to break down the old ‘them and us’ mentality, people won’t want to be their customers, let alone their friends.