Traditional bankers who believe that fintech is simply a distraction are living in a dream world. It’s here to stay and it is the first major disruptive challenge to the traditional banking industry in decades. From the launch of PayPal in 1998, technology has exploded into the banking industry, and there is much more to come.
Granted, there is still a place for the traditional banking institution, but that will be an ever decreasing one as older generations leave us and every demographic from Gen-X on down demands immediacy, full online access, digital banking, borrowing, and investing solutions, and embraces all of the technology that supports these things.
The new financial marketplace has a lot of noise right now, and certainly, there are far more fintech startups than there will be those that survive. And yet, given the investment capital being thrown at fintech right now, there will emerge major players that will disrupt all traditional notions of banking and other financial services.
Here are the five major disruptors that we already see on this exploding horizon.
-
The Technology
In reality, technology is not the real disruptor. It is the result of new concepts in banking. No one in the industry really needs to understand the technology. They need to understand the concepts upon which the technology has been developed and they need talented and creative professionals who can mesh banking goals with the underlying technology.
Transactions are no longer face-to-face in physical environments. Bank customers make their deposits at ATM’s or via their smartphones; accounts are checked and monitored online; bills are paid online; money is transferred to accounts online. And if a consumer needs a mortgage or any other type of loan? Well, that process is initiated via an online application and then may be finalized with email or phone communication. The goal of the banker is to make these activities seamless, easy, and able to be completed on mobile devices – it’s all about the consumer experience in a digital age. Bankers do not gain loyalty and trust with their physical interactions – they gain it by providing the best digital experience they can.
-
Consumers Want Convenience
One of the reasons PayPal and Ally Bank are so popular is because the consumer can “get in” and “get out.” And institutions such as online banks can offer greater benefits (e.g. interest rates) because they do not have the overhead that physical institutions have. The same goes for major online lending enterprises. People can shop for mortgage and car loans online and finalize those deals in a matter of days, because technology has streamlined the underwriting process.
Based upon big data analysis, technology can provide information about borrower behaviors and predict the creditworthiness of an applicant. Big data will also tell these lenders the types of loan products that specific demographics will find attractive, and these can be marketed easily and automatically in order to grow larger customer bases.
-
Traditional Banking Institutions are Turtles
We all know the fable about the tortoise and the hare. The tortoise ended up the winner of the race, because he was slow and steady, while the rabbit was overconfident about his speed and chose to take naps and rest periods. This is not the case with banking today. The tortoise will lose.
Traditional banks have cumbersome regulations, are still mired in their manual processes and their paperwork. All of these things take time and manpower, something that fintech runs circles around. The problem with traditional banks is that their legacy systems are based upon that tradition, and it is easier to do nothing than to make the transformations that an increasingly competitive marketplace demands.
The smart banking institution will make the transformation while it still has a strong customer base. It can operate two very different banks – one that continues to satisfy that older base and one that embraces the new technology and the new consumer who is soon to make up the bulk of its business base. There is still time for traditional banks to develop relevancy.
-
Fintech Promises 100% “New”
Part of the attraction of fintech banking enterprises is that they promise the consumer an experience that is completely new and different. Younger generations, especially millennials, are all for tearing down traditional institutions and moving in a new direction in all facets of their lives. Part of the draw of online financial services is its “newness,” – it’s unspoken condemnation legacy institutions of which banks are only one piece.
Getting to the “newness” is a tough challenge for traditional banks, but one thing many are doing is partnering up with fintech innovators, by buying them out. That buyout means that the legacy bank now has the ability to serve its younger consumers with a technology that is already in place and ready to go. Pretty slick. The bank can stand on its solid reputation and incorporate fintech solutions that will be trusted too.
-
The Power of Social Media
Fintechs are masters of using social media to get out their message of efficiency and speed. Traditional banks do not think of establishing relationships on social media, and yet this is how relationships are formed today. As legacy banks develop and adopt new technology in their practices, they need to ensure that existing and potential customers see them as relevant, up-to-date, and competitive. Establishing a social media presence will be a “must do” for financial services institutions, so that relationships can be bit the way consumers want them to be.
Traditional banking institutions do not have to die the slow death that comes from doing nothing. They may think that by adopting the common trappings of online banking services, they can remain afloat. But they will sink if that is all they do. They must remain vigilant as each new technology is developed and as younger consumers are served better by fintech enterprises; they must embrace big data as a means to make more rapid decisions; and they must partner up with those fintech upstarts that are meeting the needs of large swaths of banking consumers who want financial services solutions on their terms.
Keep up with frequent and changeable world of finance - contact our specialists and get additional help with any kind of your products, applications or software.