Traditional banks are turning to Fintech in order to transform legacy processes and be better equipped to compete in the digital race.
March 17, 2022. Fintechs, focused on streamlining digital transformation for financial institutions (FIs), including banks, have raised millions to continue developing their products. With an unfading interest in companies that would help compete against fast-growing high-tech rivals, banks are now trusting Fintech to help them get up to speed and ahead of the competition; this has brought an entirely new balance in the industry that, in the end, could be beneficial for both.
Most traditional banks have decades of experience behind them, and with it—vast amounts of diverse client data. According to Simas Simanauskas, Partnerships Director at ConnectPay, this brings two-fold benefits.
“The very essence of fintech is to utilize superior technology to create better products in the financial sector, so the fact that big banking groups are turning to fintech for solutions is a dream come true for the industry,” Simanauskas said. “Firstly, the vast amount of real-world data that banks possess is a gold mine for fintechs that can utilize it to make their technology better. Secondly, many banks have similar problems, which means that a solution built for one bank can be repackaged and sold to the others.”
It is apparent that the new generation of consumers is more tech-savvy, thus is more inclined to access digital banking services online rather than through brick-and-mortar banks. That said, the shift to online has not removed the emphasis on personalized experiences, as surveys show customers still describing it as “highly important”. This is where Fintech steps in as well, having the necessary tools to help banks retain a close connection to their customers all the while becoming more digital.
“Neo-banks have built new frameworks from scratch, employing the latest technology. Now, light but powerful tools are used to run their key processes. Consequently, this has set a new benchmark for customer service. Thus, using the solutions that Fintechs have already built and refined, banks are more likely to meet the expectations of the modern-day consumer,” Simanauskas stated.
“Essentially, in the 2020s, Challengers are doing to banking what McDonald’s did to the food industry with their “Speedee Service System” in the 1940s—selling cheap and serving fast. There is no going back, especially as bank clients become younger and more tech-savvy,” he added.
As banks and fintechs are finding more ways to coexist, new partnerships continue to emerge. For instance, London-based fintech Banked recently acquired a $20 million investment from the Bank of America to develop “Pay by Bank” solution and address rising processing fees. In Spain, BBVA bank backed digital bank Neon with $300 million, giving it a 29.7% stake in the fintech.
All in all, Fintech has brought a culture of cooperation in the industry. As Simanauskas noted, “why compete by offering the same core products that have high set-up and maintenance costs, when you can specialize in bringing additional value, at the same time driving down costs of having to maintain,e.g. a clearing system that now gets 2x of the flow.”
What’s more, increased collaboration is set to bring additional value to customers, who will gain access to more refined financial tools.
“Currently I’d call the collaboration a fine balancing act, with challengers bringing efficiency to legacy systems while brick-and-mortars are continuing to transform their framework,” Simanauskas said. “In the meantime, both are closely observing the market and competing with newcomers in the bid to retain their customers, which essentially means that, in the end—it’s the user that gets the best of both worlds.”