If banks and fintech companies are pitted against each other, traditional banks will win the number game, but fintech is arguably the future of banking. Can these two forces coexist?
People’s dependence as well as reliance on mobile banking channels has grown by 20-50% since the pandemic according to a report by McKinsey. People have accepted online banking wholeheartedly and technology-based remote banking is decidedly the future of banking. Traditional banks and financial institutes have woken up to the fact that financial technology is all set to replace them as primary channels of credit and investment. Surely, in the last couple of years banks and financial institutes have taken a lot of bold steps in terms of integrating technology into their processes, making branchless banking, and agentless transactions more accessible.
Is there some kind of tension between fintech startups and banks? The competion that disruptive fintech startups have introduced has actually done a lot of good for consumers since it has forced the banks to improve their services. In fact, the competition right now is more between fintech startups than between fintech and traditional financial institutes.
What drives the growth of Fintech?
Speed comes to mind right away. Fintech has removed the geographic hurdle between consumers and financial services. There is hardly any physical step that a consumer must go through in order to complete a transaction or even a KYC. If there is at all a need for physical interaction, it is usually representatives of the fintech services that do the traveling and the meeting at the consumeres; convenience. This is the kind of service the modern consumer is getting used to and they are not going to settle for any less.
Speed aside, what drives fintech is the focus on user experience. The applications are getting better and better. You get wealth management and financial advice as complementary services right under your finfger tips.
Thanks to fintech, you can complete a transaction on an eCommerce channel like Amazon in seconds. No wonder, the consumers are less prone to going back to time consuming financial transactions through traditional mediums. 25% of the consumers want a fully digitized banking experience according to another report by McKinsey.
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Key use cases of Fintech
Online payment gateway: The infrastructure that allows merchants to accept payment for their products and services through the internet securely.
Mobile payment app: A mobile based application that allows sellers to accept electronically transferred payments without investing in hardware.
Crypto exchanges: Cryptocurrency is yet to be accepted globally as formal tender, but it is used in quite a few places and it depends on fintech.
How are banks reacting to the emergence of Fintech
Banks and financial technology are parts of the same industry. In fact, the usage of financial technology was reserved to traditional banks and financial institutions up till the early 2000s. The technology was used to strengthen their backend processes. Now that fintech startups are using technology to enhance customer experience, banks are reacting in two ways. A) acquiing fintech startups. B) Adopting tech-driven practices.
Finance had never been so easy and accessible for the consumers as it is now, thanks to the fintech industry. Whether we will see banks become obsolte or fintech companies merge with banks, only time will tell.
