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The world continues to change and evolve to keep pace with emerging technologies across all sectors. Fintechs, or financial technology firms, have posed a threat to traditional banks for years, offering many banking and financial services in a more user-friendly and cost-effective way. From wealth management to lending and everything in between, fintechs are in tune with changing customer needs and equipped to meet them in efficient, effective ways.
The subprime crisis that hit just after the mid-2000s caused governments and consumers to demand more options in the financial services space. Ripe to be improved by digital innovation, it’s no surprise that the banking and financial industries are experiencing a transformation. Fintechs are the new players stepping up to fill this role.
Financial Technology Evolving With Digital Innovations
Agile fintechs are leveraging technology at a pace and level that some of the oldest banks cannot match. By contrast, fintechs are nimble and can provide services more efficiently and at a lower cost. Not surprisingly, customers are responding enthusiastically.
Both wealth management and financial consulting are going digital. New credit scoring systems, peer-to-peer lending platforms, and innovative small business funding are just some of the ways fintechs are revolutionizing banking. New payment processors provide retailers with an easier, more affordable way to accept online payments.
Fintech banks are based around user apps and have been skirting the heavy regulations traditional banks have always fallen under. There’s a push to update outdated banking requirements to get with the times and mirror the more agile digital environment and economy. Some fintechs are partnering with already-licensed banks to bolster their reach and back offices. That said, a Turkish bank was able to create a functioning branch within the Facebook platform several years ago.
World Retail Banking Report Confirms the Impact of Fintech
The 2016 Capgemini World Retail Banking Report shows fintech firms have impacted the banking industry in a profound way. The report found that almost two-thirds of banking consumers use some fintech products or services. An impressive 88 percent say they trust the fintech providers they use either completely or somewhat. About 55 percent of users are also very likely to recommend fintech providers to others, while just 38.4 percent would recommend their traditional bank.
The report concludes that a tipping point favoring fintech firms in the industry is imminent. Younger customers in particular are moving away from traditional banks and toward fintech solutions. Fintechs are filling gaps in customer responsiveness and agility that banks have neglected. About 16,000 banking customers and 140 banking executives in 32 countries were surveyed for this report.
Old vs. New: Banks Bogged Down by Legacy Systems
Banks are based around legacy systems and a conservative, slow-to-change culture. The vast majority of banking consumers surveyed – about 80 percent – said that fintech firms are easier to use, provide faster service and offer a positive customer experience compared with the old way of banking.
Fintech firms move quickly and don’t have a problem pivoting on the fly to meet market demands. Despite evidence to the contrary, a surprising number of banking executives reported that they still don’t think fintechs will impact traditional banks. Industry analysts believe this will result in these banks being left flat-footed and in the dust.
The Capgemini report seems to indicate that there are two kinds of responses from established financial institutions: those that are in denial about what’s going on, and those that do understand what’s happening but don’t yet have a solution. European banks seem to have more awareness about this issue than U.S. institutions.
Aligning With Fintech Innovations Key to Survival for Banks
Early indications point to the value in existing banks partnering with fintech firms. Some are now collaborating with or at least investing in fintechs. Others are creating their own in-house technology teams to help them mirror and capitalize on the ways fintech firms are taking the banking industry to new places. Some analysts say it’s too soon to decide which is the best approach, and banks will have to figure this out along the way.
The legacy mainframe computer systems used by most large brick and mortar banks will be a major obstacle to their performance going forward. Even the majority of these institutions – over 87 percent – admit this. They know that digital banking is the way of the future, and this is in essence why fintechs are such a threat. They are designing themselves out of the gate to thrive within the digital ecosystem.
Increased Innovation Creating a Better Banking Experience for Customers
Also, while large banks have an abundance of customer data, they are not leveraging it optimally to their advantage. By comparison, fintech firms are using advanced analytics to parlay key data points and consumer behaviors into the formulation of targeted products and marketing. This superior innovation and technology allows for the intuitive creation of new products. This ultimately results in a more cost-effective and satisfying experience for the customer.
While regulatory and compliance concerns will impact how the banking industry changes, fintech founders see this as an opportunity as well. If the goal remains to create an ecosystem that allows innovation to thrive, both consumers and the banking companies can win.
Traditional banks are facing a major turning point at this time. Those that succeed will likely be the ones that adopt and integrate the strengths of the best fintechs.*
*LeadsMarket.com is an online marketplace where publishers can sell consumer requests and buyers can pay a certain price per lead. Any reference herein to any vendor, product or services by trade name, trademark, or manufacturer or otherwise does not constitute or imply the endorsement, recommendation or approval by LeadsMarket.com. This article is intended to provides broad and general guidelines and does not constitute professional or legal advice. You should not use this article as a substitute for your own judgment, and you should consult professional advisers before making any advertising, tax, legal, financial planning or investment decisions.
