Fintech, which is short for financial technology, refers to the use of technological innovation for the provision of certain financial services. Fintech startups are setting the benchmark for changes in the financial sector, supported by a range of products, processes and business models. While financial service providers are widely incorporating relevant technology into their operations, fintech companies model their structure around technology-driven innovation.
The high level of innovation of these brands has reshaped the way individuals and businesses look at finance. The convenient developments have disrupted traditional financial expectations, challenging for the provision of better quality services across the board. The rise of fintech has been so meteoric that a 2018 financial inclusion report by the World Bank considers it as one of the possible solutions to the disconnect between banking institutions and their clientele.
Why are Fintechs so popular?
These are the three main trends that have led to the emergence and success of fintech startups.
Major financial scandals and crises have contributed to the development of more stringent regulation for banks. The result is a higher cost of operation for banks, which has filtered down to lenders. Banks have been forced to increase the cost of their products, which has pushed customers towards alternative financing options. Since fintech startups face less oversight than banks, they have been able to offer competitively priced products.
Consumers have been exposed to progressive technology in different aspects of their lives. This has raised their expectations in terms of the quality of customer service. While many other sectors have adapted to meet these demands, banking still relies on outdated technology that offers limited service. Unlike banks, Fintechs revolve around technological innovation, with the provision of seamless and high-quality customer service being central to their models.
Financial players required fixed assets in the past in order to scale up their operations, such as branches. This largely prevented newcomers from making waves in the sector. However, the evolution of technology has reshaped the demands of the provision of financial services. These institutions do not need to engage in live customer interaction to achieve success, with many fintech startups focusing on the development of technological infrastructure instead.
Can banks benefit by partnering with fintech startups?
Fintechs have disrupted the financial ecosystem with an innovative approach to the provision of financial services. Despite the difference in the operational and management processes, a fintech and bank partnership could prove beneficial for both parties.
These are some potential benefits for banks arising from startup collaboration.
Improved customer service
Banks offer very limited customer-oriented solutions when compared to fintech startups. Over 80% of fintech customers feel that the services are client-oriented, as opposed to only 53% of clients from the banking sector, according to a PWC report. Fintechs provide 24/7 access to their clients through non-traditional channels such as social media, which are both convenient and easily accessible. The use of tools such as social media has put Fintechs well above banks in this regard.
Banks have sought to address this by embracing mobile technology to improve the quality of customer-oriented service, with most players offering a mobile app. By partnering with Fintechs, they could improve the quality of these services and address factors such as customer engagement.
Ability to offer smart solutions
A significant number of people seek financial services from fintech startups to make up for their absence through traditional lending sources. Fintechs are attractive because they target the limitations of banks and offer smart solutions. They are designed to provide solutions for customers who are unable to access loans because of poor credit history, as well as a number of personal finance management tools.
Banks are still under heavy regulation, which means that they may be constrained in this regard. By partnering with Fintechs, they would be able to attract more people, including those who might otherwise not be able to access their services.
Integration of innovative technology
Banks suffer from a limited ability to incorporate innovation. As noted, one of the key reasons why Fintechs have been so disruptive to the sector is because they offer modern integrations that facilitate better user experience. Even though banks are taking up application program interfaces and software-as-a-service solutions, they are still far behind the level of innovation of Fintechs. They will benefit from advanced integrations, which could work to improve the quality and value of service offered.