FinTech and banking started off as foes but like the unpredictable plot of a Quentin Tarantino film, it seems like they are better served as allies.
FinTech companies have been disrupting the way we understand, consume and handle our finances for the better part of a decade. The fintech market share across 48 fintech unicorns is now worth over US$187 billion. That is slightly over 1% of the global financial industry.
At a first glance, the new, fresh and modern way of doing things seemed to be threatening the foundation our entire banking system was built on. The division between traditional banks and financial technology was hard to miss.
To give you some context, in a 2016 PwC global report, 76% of banking respondents feared that some part of their business was threatened by FinTech.
A few years later, the FinTech revolution seems to be having a different impact. Banks are no longer viewing FinTech companies as their foes but as their future.
They are embracing the new outlook on finance and start to understand that FinTech is here to improve the banking system rather than abolish it.
Let’s dive right into it.
FinTech Revolution Developments
According to OECD’s ‘Digital Disruption in Banking and its Impact on Competition’ report, the FinTech revolution has been responsible for the following developments:
- Initiated the use of APIs have enabled service improvements, especially faster payments
- Introduced digital wallets and mobile-based payment schemes
- Instigated the use of cloud computing in consumer payments, credit scoring, statements, and billing
- Set in motion the use of development methodologies like Agile, DevOps and cloud-first
Reading through that list, it becomes apparent that FinTech has managed to infiltrate a lot of banking processes and sectors. More than anything, it has shifted customer expectations. Having interacted with FinTech companies, consumers have become accustomed to a higher level of service. A few examples are:
- Digital solutions
- Better UX and intuitive design
- Faster response times
- Handle all their financials through one platform
Why Banking Need FinTech
We might as well copy and paste the section above. The reasons why banks need fintech are obvious – they need the technology to make the banking experience easier, faster and more efficient.
90% of fintech companies cite enhanced customer experience as key to their competitive advantage. Banks have a lot to learn from that. Being the only player in the game for so long, they never considered customer experience as a factor that could influence their bottom line.
Another thing to add to the list is branding. FinTech companies have put a lot of effort into connecting with their customers, creating a story behind their brand and sharing it with them. Banking has a lot to learn from that approach, too. FinTech companies essentially managed to change the narrative around financial services.
Their lively, young and fresh branding turned simple transactions to experiences. They essentially gamified the financial process, offering value through an experience people were happy to return to.
Last but not least comes pricing. Due to the fact that most, if not all FinTech solutions are digital only, they have a distinct cost-cutting advantage to traditional banks where they have high-street branches. If you couple that with the fact that FinTech companies get most of their money from venture capital, then it becomes very apparent why they can offer competitive pricing.
Banks can only benefit from collaborating with FinTech companies. Not only can they inherit the technology that can do wonders for their retention numbers but they can gain access to a new, younger demographic.
Why FinTech Needs Banking
We are creatures of habit and this is hard to change. As amazing as FinTech companies are, they are trying to infiltrate an industry that’s old as time. Their biggest problem is the trust gap between them and the customers.
Most customers are used to interacting with traditional banks and trusting them with their data. Even those who do use a neo-bank, still feel the need for a traditional bank. Most of Monzo’s and Revolut’s customers like having the comfort of having a traditional banking app on their phone.
FinTech companies need the years and years of data that traditional banks have acquired as well as the safety of the liquidity they can provide. Last but not least comes the issue of regulation. FinTech companies are still finding their way in the current regulatory framework which puts them at a slight disadvantage to traditional banks.
Reservations over regulation are one of the key reasons for the trust gap we mentioned before.
Isn’t it interesting how two seemingly opposing forces actually complement each other perfectly? Don’t be surprised to see the two come together in the years to come as the benefits for both sides are obvious.
One thing is for sure. If this were to happen, we, the customers would be the ones to benefit the most.