Digital Payments and Technology has disrupted every industry significantly. The banking and financial services industry is perhaps one of the largest yet to be fully transformed.
Banks across the globe have been skeptical about Fintech, either never regarding them as a real threat or viewing them as a new competitor that has been introduced to cannibalize core banking services.
Remember how the hospitality and airline industries were reluctant to leverage Technological and Digital power and continued their traditional modes but time showed them how crucial a role technology can play in making or breaking their business.
Banks often see Fintech as a new kid in the block, someone that cannot be trusted and has to be kept an arm’s distance.
But in the case of Fintech revolutionizing the banking industry, it is not a question of “if” but “when”. The sooner the banks realize the potential and the constructive role Fintech companies can play in the Banking marketplace, the better for all parties concerned.
The Bank’s Misplaced Trust
Regulations as a shield
Every industry will be “transformed” and “uberized” sooner or later. Banks have a propensity to believe somehow the rigid regulations and licenses will insulate them from radical changes and even thwart the growth of Fintech, at some point, keeping Fintech always in the shadows of traditional banks.
But what banks essentially don’t realize is that every fintech empowered with technological infrastructure has the agility to circumvent any regulation.
Banks Enjoy the Trust of consumers
Another misconception that banks harbor is that they still have the undeterred loyalty and trust of consumers. The 2008 financial crisis in the US and the rigmarole of financial scandals (FX fixing scandal) have only created a bigger appetite for substitute finance.
May not be seen as partners anymore
In a post-pandemic world, in the ever shape-shifting economy, banks are often not seen as a partner, but entities that take care of their interests and profits with scant regard for consumer’s convenience, security, gain.
So, how can banks take these challenges and vicissitudes of financial disruptions in their stride and revamp their unique value proposition without losing their authentic identity?
Well, to begin with, banks need to start looking at fintech as collaborators who can even be their clients at some point in a consumer’s journey.
By working in close liaison, fintech and banks stand to benefit from each other in the long run.
Banks could invest in incubators and start funding in fintech start-ups. The mistake that most banks make is that they make small customary investments on products that can be added to the bank’s already existing products.
The logic behind such a limited funding or investment is that banks firmly believe such add-ons will make the end user experience better and what is good for clients is usually good for banks as well.
But playing it safe may reduce risk, but it is a no brainer that the possibility of extraordinary growth too comes from taking few risks.
Banks should start directly competing with fintech products.
Fintech wave 1.0
Today, we are experiencing the first real fintech wave and what do we see?
Tech companies are taking banks head-on on products like-
- Loans and credits
- FX and remittances
- Wealth and Revenue Management among others
Lending Club is an example of a global fintech pioneer. Its IPO was such a phenomenal success that every other fintech player experienced the positive ripples of change.
So, will fintech replace banks some day?
In all plausibility, the answer is, hopefully for banks, a big NO but there is more than that meets the eye.
Fintech banks exist for a different reason all together. If they were to supplant traditional banks and financial institutions, then fintech defeats its very purpose which is to elevate the consumer experience by working in close collaboration with banks.
Fintech relies, partially, on banks and banking infrastructure for a plethora of core banking services like bank accounts, brokerage, crowd funding, insurance etc.
In that sense, fintech becomes a client of traditional banks who help them serve their clients better with technologically-empowered services and products.
Philippe Gelis, co-founder and CEO of Kantox rightly calls such a system a “cooperative competition.”
He argues that on the one hand, fintech transforms banking’s whole experience and on the other hand it also brings them clients and business, thus helping banks stay relevant in these drastically changing times.
It is a win-win situation for all parties involved!
80% of the Lending club’s cashflow is accredited to FIs and not from its peers.
Lending via Fintech will increase efficiency and hence will be more profitable for banks.
So, what is the future of Fintech or Will it rule the world and are we prepared for a Fintech wave 2.0?
FINTECH Wave 2.0
A Fintech wave 2.0 is expected to arrive in about a couple of years. So, what can we anticipate and how can banks and businesses gear up for the Fintech revolution?
Fintech banks with the below listed abilities may emerge-
- Core banking infrastructure
- API platform to connect all players
- KYC infrastructure
- Banking license
- CRM- Customer base & Customer support team
Banks’ purview of services would include
- Bank accounts
A slew of other services including investing, brokerage, wealth management, loans, credit, mortgages etc will be taken care of by third parties via API- traditional banks, FIs, or even fintech companies.
From an end user perspective, he doesn’t care if the loan he applied for should come from a bank or a fintech. His primary concern is that the process should be quick and frictionless and hopefully at the minimum interest.
In a collaborative banking ecosystem where loan license is not the prerogative of traditional banks alone, the user can benefit with multiple options and pick the one that best suits him.
A competitive, healthy bidding process can give him the best offer!
The best part of such a banking process is that fintech companies are directly competing with serivices that banks had monopolized since time immemorial, without even having to build these products from scratch and banks are not losing as well!
So, how can such a futuristic banking ecosystem be developed?
THE FINTECH FUTURE!!!!
Technological infrastructure like API, Compliance, KYC are imperative to gear up the aforementioned banking marketplace.
Banking license prices can be exorbitant. Getting big players on board can be a challenge.
CRM or Customer Relationship Management
Like, any business, attracting clients, convincing them to buy services that depend on third parties for all other additional services will seem improbable.
No matter how evident the signs are, bankers are still skeptical about a fintech bank in the near future.
So, until that day dawns, let’s hope that merchants, bankers, and all stakeholders will be prepared to take the big FINTECH plunge!
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