Will FinTech Disrupt The Big Banks?

Welcome Onboard! The Fintech World Greets You!

Did you know?

More than 20% of global financial service businesses are at a risk of losing it to Fintechs by the end of the decade!

Did you know?

Consumer banks and companies dealing with payments and fund transfers are at the highest battle of losing it to Fintech companies.

Did you know?

More than 67% of banks and other financial services company fear the pressure on margins with the rise of Fintech companies.

Source: Informes

So what is this Fintech? It is just a technical buzzword that is creating ghosts of disruption for the banking and the financial sector?

Technology has the last laugh!

With more than 78% of global CEOs considering the integration of Fintech essential at the top levels of management, the trend is certainly more than a passing cloud.

Technology in the past has given rise to several disruptive models of businesses that have slowly crept their way into the incumbent’s territory in many sectors! The video rental business is one classic example that sang its swansong to the tunes of maturing video compression technology and the widespread use of broadband in homes!

Industry experts and C-suite banking professionals who once believed that tech-driven companies cannot make their way into the highly regulated financial services sector are re-thinking otherwise- thanks to the formidable Fintech!

Fintech – Disruption or Value Addition!?

Fintech is born from the marriage between the morphing consumer base and the industry’s attitude to create newer and better services for consumers. And Fintech indeed keeps up with the congenital motives of its origin.

However, it cannot be completely stated that Fintech was born only to disrupt the traditional systems of banking and other financial services.

Look at the case of usage-based insurance models (using behavioral patterns of drivers to determine premium rates) in regulating auto insurance. While battling the initial challenges of privacy hasn’t been easy, more and more companies are using the technology meet specific consumer needs. Fintech in this case, adds value and does not disrupt!

A report by PWC categorizes Fintech innovations into two types,

  • First, the Stand-alone Fintech companies that directly offer their products and services to consumers (B2C) have the highest chance of stealing market share from the traditional systems.

Example: FeeX, the company named as the most disruptive Fintech startup offers retirement saving services for its users. A few other examples may be PayPal, 2Checkout and ProPay.

  • Secondly, the B2B Fintech companies that derive mutual benefits by integrating value-added services to the existing incumbents (like the example of usage-based insurance that we previously studied).

Examples: Trulioo, Kontomatik and Xero

Clearly, Fintech offers a pool of opportunities and incumbents partnering with these companies earn the privilege to offer differentiated services and products with the realm of privacy, regulations and compliance.

Incumbents must act now…

Marketing Heads and Operational Executives around the world are recognizing the potential of Fintech and here are a few tips to integrate the trend into the DNA of an organization.

Tip 1: Fintech belongs to the crux of the organization

As technology advances, communication with customers and growth in data expands at all levels thus making Fintech essential at every level of operation. The differentiating factor here is for banks and other financial services to draw the right balance between investing in technology and improvising on their core business strengths.

Tip 2: Worship your customer through Fintech

More than 75% of players in the BFSI sector want Fintech to enhance customer experience by engaging them through multiple channels. Feed your Fintech strategy into the best mobile experiences to allure customers.

Orange acquired Groupama for attracting customers through the mobile banking service.

Tip 3: Establish strategic partnerships with exclusive Fintech companies

Ignoring Fintech maybe a sin! But investing fully in Fintech may not just be a possibility yet for some organizations. Strategic partnerships with Fintech companies can help incumbents to combat their way through the cluttered competition before it is too late.

Earlier this year, Deutsche Bank which is already on its way to having its own block chain technology stressed the importance of partnering with other digital currency businesses to sustain successfully in the industry.

Tip 4: Deal with the “caution” tag rightly

The regulatory environment which forms the backdrop for the financial services sector poses the biggest challenge for Fintech adoption. Closely following the regulatory concerns are cultural roadblocks and management misconceptions. Remember most Fintech companies are in their initial years of establishment and thus highly flexible to accommodate changes as demanded by the clients.

Accommodating regulations has been one of the major reasons behind the growth of Chinese Fintech companies like Tencent and Alipay.

In conclusion, incumbents from the financial sector must be prepared to leverage the multiple opportunities of Fintech either through direct investments, start-up programs or joint partnerships to ensure that they are not left behind in the trade.

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