FinTechs are new-age disruptors challenging the traditional banking model leveraging innovative technology to meet user expectations. Their popularity is rising due to their excellence in mobile expertise, accessibility, convenience, and contextuality.
Moreover, they have the edge over traditional banks primarily due to the mobile experience, as mobile devices are the most ubiquitous. As per Statista, by 2023, the mobile internet user penetration is expected to grow to over 35% or approximately 500 million consumers.
Banks, on the other hand, are behemoth organizations that cater to a wide range of users. Their offerings are varied rather than niched and provide services based on stability and trust through a resilient business model necessary for economic growth. They will continue to remain operational if they adapt to change.
Banks and Fintech: Can they Replace Each Other?
FinTech may seem like posing an existential threat to the banks. Thanks to their leaner organisational structure, the ability to pivot and take advantage of technologies compared to legacy institutions. Moreover, fintech delivers services to target segments with customisation relevant to trends and can respond to user expectations.
But despite the technology backing, can fintech fully replace banks going forward? It is unlikely that they will replace banks completely. For instance, as per a World Fintech report 2018, 75.5 % of fintech surveyed expressed a desire for collaboration with traditional financial institutions.
Banks have been trying to bring innovation and improve the customer experience for a long time, but that was limited to only a few areas. However, they have not offered any new financial products, unlike fintech with their customisable financial offerings.
Banks have long been in business and have access to in-depth knowledge and deep industry expertise and know-how which fintech, due to their small scale and recent origins, do not have.
Hence, banks can make efficient and effective solutions by applying modern data analytics, ML and AI. However, this change needs both time and resources. And it’s uncertain if the solution so developed will work or not, leading to a waste of both time and resources. Therefore, if adopting technology seems like going down the right path, partnering with fintech is the way out.
Challenges Facing Both Banks and Fintech
Banks, bound by complex regulations are so used to the traditional working model that they need a considerable impetus to push innovations. They are often slow to react and change, which prevents them from making the best use of newer technologies. Banks have been in business, mainly relying on the trust, legacy, and reputation they have built over the years primarily because of lack of competition.
However, the fintech disruption is making the banks adopt a customer-centric approach. Due to tech backing, consumers have more solutions and products to choose from, irrespective of who is offering the options. In addition, the current generation is digital-savvy as they have been connected to the world through web-enabled devices since birth.
In a report by Accenture, the global investment in fintech has reached $3 billion in 2013 from $1 billion in 2008 and is slated to grow further. As a result, the global fintech market is expected to grow at 24.8 % through 2022.
Fintechs cannot take over the market due to their scale and regulations. But, at the same time, banks can choose between meeting them at their innovation level or partnering with them to remain competitively afloat.
So, the question of whether banks and fintech are rivals does not arise. Instead, what banks must do is partner with fintech to reach unbanked and underbanked sections of the population.
Some experts suggest banks should take on innovation, and fintech institutions will not be necessary. Banks have no choice but to change the way they operate. Banks will have to innovate, but that will take time and a slow pace.
The banks can’t innovate quickly due to their size and will need to use data analytics and customer insights to approach customers with what they need and across all platforms.
On the other hand, Banks will need to remain relevant to customers as they navigate through their daily routines. Banks will need to create a frictionless customer experience by partnering with external service providers.
Future banking will involve gathering insights from data acquired from users to deliver new-age tech-based solutions. They can even take on the role of guarantor of their users who have moved to online portals.
Fintech has largely been successful in making inroads in the financial ecosystem. They have followers who have either been left out of the financial inclusion, or the offerings have not suited them. But fintech has its limitations too.
It is difficult to predict what will finally prevail – internal innovation or partnering. But, for now, with insights from The Business Research Company in 2019, fintech has been doing well with the global fintech market valued at $127 .66 billion in 2018 and is predicted to grow to $309.98 billion by 2022.
Banks and Fintech – A Symbiotic Relationship
Bank and fintech partnerships are the way out as the fintech industry is maturing. The partnership defines a clear symbiotic relationship for both sides. Fintech stands to benefit from a bank’s legitimacy, trust from the market and access to a large capital reserve to accelerate growth. Banks get to gain from advanced technology to meet user expectations and deliver customised solutions.
Like pieces of a jigsaw puzzle, they can complement each other to provide new-age solutions to real-world needs. For example, banks can take the help of fintech to expand outreach, and fintech will benefit by getting business.
Consumers get to access better financial services leveraged with fintech’s agile and innovative solutions and banks trust and reputation creating a win-win for all.
Time to Collaborate
For example, ICICI and Paytm have partnered to launch a digital credit account on the Paytm app. The Paytm -ICICI Bank Postpaid allows customers access to microcredit for their regular expenses like bill payments. Many such products are dotting the market.
All legacy lending institutions have and will continue to make inroads into the existing user base and reach the unbanked sector by partnering with fintech. And, the story has just begun.
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