Has Fintech been able to Stir-up a Revolution in the Finance Sector
Fintech found its way into the banking sector during the economic slump of 2008. Ever since then most fintech startups have been able to meet customer expectations to the extent where now they have become a threat to traditional banks and financial services firms. With the digital regime at its peak, fintech is deemed to be the future of the finance sector. And financial companies have no choice but to let go off their traditional ecosystem and expend resources on staying on top of the technology curve. In words of Stephen Bird, Citigroup’s CEO of global consumer banking, “I describe it as the extinction phase. What happens in an extinction phase is that you either rapidly adapt and new means of competition are created, or you go extinct.”
Although difficult to assess, an ballpark estimate from data sources claim that there are roughly 2500 fintech startups in Asia, while UK and US show a combined total of 4000. These startups have been able to draw a disturbing number of customers, unsatisfied with bank services, to themselves. Which clearly defines the recent mergers and takeovers by bigger banks of these fintech innovators, as a sign that they won’t let it all slip off from their hands so easily. The fervor is rising and the digital customers will get all that they demand, because the era of ‘customer is the king’ has begun, even for banks.
Here’s a look at whether the gale of fintech is a strong one or will it die a faster death?
Where is Fintech advancing?
Digital has already made its way into the finance sector. Although the areas of lending, insurance etc. are yet to be completely disrupted, thanks to various fintech startups, customers are already experiencing a more automated environment, giving them freedom and information to make better choices. The interplay of social, mobility, analytics, and cloud (SMAC) has already penetrated the payments and lending markets, paving way for peer to peer lending, automation, digital wallets, and robust online payment mechanisms. More than 40 innovative startups have come up in lending segment alone. And are eating up the market share of the financial firms. Clearly, the impact of fintech on the financial market share is evident. It’s no surprise then that, a lot of these innovative firms have been acquired by big banks as that is the fastest way to be on top of the innovation curve.
Interestingly, mid-tier banks, who cannot afford acquisition of fintech startups, are taking the partner route to build their fintech eco-system. From automating their customer acquisition process, to having their own credit score algorithms, to automating the operations and underwriting processes, mid- tier banks are going all out to adopt technology. For instance, this leading alternate lender leveraged a fintech partner to create a self-servicing customer portal, increasing customer engagement and retention by up to 20 times.
Cryptocurrencies and other digital payment methods through third-party apps are yesterday’s news, Fintech has enabled banks to come up with their own applications and now they are looking forward to robo-advisors, for automated wealth and portfolio management.
Where are banks still lagging
Getting rid of the technical debt:
Simple online payments often require following a long and tedious process with multiple passwords, leaving the user frustrated and often shifting to easier options (often provided by startups). The biggest advantage fintechs have over banks is their farsightedness to analyze and adapt to the consumer demands. They build solutions around user experience and update it for customer retention and acquisition. On the other hand traditional banks, in their effort to adopt technology, are trying to build new solutions over their old architecture. In other words, they are implementing applications for the short run, not realizing that it is the agility and the future- readiness of the fintechs that banks have to adopt.
More fintech partnerships required
Banks need a well-reasoned and balanced strategy for their innovation needs. For a far-sighted approach, it is imperative for banks to either bring technology expertise on board or partner with technology experts. This will enable them to build a customer ready environment, without being burdened financially by acquisitions. Additionally, by letting experts handle the job, they can focus on their strategic business goals. Of course, these business goals and the tech innovation must be in sync for successful results.
What is Fintech’s Future?
Fintech is not another bubble that will go bust with time. Although currently under regulatory scanner in many countries, fintech has a promising future. And, it is safe to say that fintech is yet to reach its pinnacle. In fact, it is an ever evolving sector that will force everyone and everything in its radar to evolve with it. Banks and other traditional financial institutions need to forsake their traditional garb, especially if they wish to retain their customers. The scope is huge and only a meagre part of it is covered. Indeed the future of fintech is bright and disruption at a bigger level is on the cards.
To conclude, indeed Fintech has been able to stir up a revolution that is about to get more intense with new definitions of money arising.