A lot has been written about the relationship between traditional banking and FinTech. The most common thought? The astounding rise of the world’s FinTech market and how it will affect the banking industry. The general opinion is that the constant progress of FinTech will one day spell the end of the banking system as we know it.
What is FinTech? It’s defined as ‘computer programs and other technology used to support or enable banking and financial services.’ Advances in its technology include mobile functionality, simplicity, big data, accessibility, cloud computing, contextuality, personalisation and convenience.
Traditional banks have few of these qualities and therefore rely on something FinTech start-ups haven’t yet mastered – trust, security, significant capitalisation and customer indifference. But according to Starling Bank’s report, traditional banking consumers are fed up. The top frustrations with current UK banks being:
- Unclear and complicated language and charges.
- Complicated products that don’t fit with lifestyle.
- Processes and technology that takes too long.
- A superior or unhelpful attitude.
From this, it is understood that the technological innovation FinTech provides could help traditional banks reach their goals and appease fed up consumers. Indeed, in 2018, a partnership of the two presents boundless opportunity.
The top business benefits of partnering with FinTech technologies, per ACI’s FinTech Disruptors Report*. include the ability to generate new revenue streams (64%), the ability to enhance customer experience (59%) and the ability to offer new applications – at 56%.
Chris Skinner, Chairman of the Financial Services Club, comments:
“Start-ups have no existing structure to change so they can change everything. The challenge is how to convince customers to change. Incumbents (traditional banks) have millions of onboarded clients and so to change anything takes time.
Most have the time though, as customers are slow to change. Fundamentally, both are facing two very different challenges – FinTech’s are creating while the incumbents are converting.”
By embracing themes, like openness, collaboration and investment, banks can afford to disrupt their own business model rather than waiting for challenger models to do so. However, traditional banks are anticipating this by creating new businesses within their existing structures that adapt and collaborate to meet these challenges and to make better, faster use of customer insight. A key competitive advantage.
A FinTech and Bank Partnership
Further to ACI’s Report, more than three quarters of banks, and a similar proportion of FinTech groups, identify partnership with the opposite camp as an essential ingredient to meeting the challenges of institutional inertia.
In fact, 80% of banks agree with their FinTech peers that FinTech is a viable, even essential path to the future. The top three ways embracing technologies can help banks meet their goals, according to ACI, include engaging in partnerships with FinTech (78%), expanding existing partnerships vendors (57%) and leveraging cloud technology – at 44%.
In 2018, banks’ new approach to FinTech is more about seizing opportunity and changing customer needs than defensive strategies to mitigate risk. Turnerlittle.com observed statistics from the same ACI report, to outline the exact areas where banks want to partner with FinTech:
- Payments – 68%
- Banking infrastructure – 43%
- E-Commerce – 40%
- Remittances – 37%
- Security and fraud management – 32%
- Consumer banking – 29%
Financial institutions see the greatest opportunity in payments – with nearly 70% identifying this as a key area of interest – followed by 43% interest in banking infrastructure.
Equally, e-commerce is a focus for 40% of banks and remains a major focus for FinTech too, suggesting that the current period of development is proving productive in terms of aligning interests and establishing goals between the two industries.
*ACI’s report considers findings from an industry-wide survey of banks and established financial institutions, FinTech start-ups and ecosystem participants alongside insights from over 20 interviews with financial institutions across Europe, FinTech founders, investors and enterprise-level technology firms.
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