Fintechs are often seen as the disruptors of the banking
industry, but what does that really mean? How different is fintech from
traditional banking? With all of these questions in mind, Gareth Wilson decided
to share his research.
Traditional banks feel threatened by fintech businesses
because they could not see themselves winning customers back once those
customers had switched. Fintech challengers feel more optimistic about their
future because they see a gap in the market for financial services left by
traditional banks.
It's no secret that banks are facing competition from the
fintech industry. The question is, how can traditional banks rise to meet these
challenges? There are three ways: by embracing disruption; by collaborating
with challengers; and through acquisitions.
Nonetheless, fintech newcomers may exceed traditional banks
in a variety of ways. Fintechs focus on technology and customer experience. This
means they can adapt quickly to new changes. They also have the freedom to
expand into new markets at a rapid rate, thanks to their flexibility. However,
there are some cultural differences to consider, for example, the German
fintech challenger N26 had difficulties expanding into the United States
because of such cultural barriers.
The good news for banks is that during the COVID-19
pandemic, the level of trust in banks increased on the transaction level.
However, becoming more agile requires investment in digital banking
propositions.
Most traditional banks are struggling with things that are
outside of their core business expertise because they are influenced by legacy,
heritage, and conservative ways of thinking on the executive level. That's
where fintech challengers are shining through: by having better technical savvy
than traditional banks. Furthermore, it's reasonable to infer that a high
proportion of fintech founders are former bankers who felt restricted in their
prior jobs.
With the rise of financial technology and the increased
availability of credit and payments, banks are increasingly losing their
traditional role as middlemen. Previously, they would take deposits from savers
and make loans to borrowers; now they do less lending and more managing risk.
But this is changing: fintech challengers like Monzo in Britain or Stripe in
America could rise above banks by using new technologies to bypass them
altogether.
Gareth Wilson outlines how fintech challengers can do a
better job of competing; "Avoid the temptation to copy. Work and drive
your own niche. Ensure support from parent companies and accept
cannibalisation. Avoid a clash of cultures and continuously improve the
MVP."
The best model is when all of the points mentioned above are
considered. However, gaining access to investments is becoming increasingly
difficult as merger and acquisition departments, venture capitalists, and fund
managers are placing higher standards on how capital gets allocated.
In conclusion, the future of the banking industry is
changing and it's not a moment too soon. Fintech challengers may be disrupting
traditional banking now but there are still areas where traditional banks have
opportunities to up their game against them and win back customers. There is ample
opportunity for both to co-exist successfully, but traditional banks must
embrace disruption and demonstrate a willingness to change.
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