Face it and embrace: fintech’s new realities

In 2005, there were roughly 1,000 fintech companies. Now in 2016, there are over 8,000. For years, fintech developments were taking place without any real threat to the banking sector. Companies like Bloomberg and Thomson Reuters were helping banks by creating more sophisticated tools and processes to help with things like risk management and data analysis—things the traditional customer never thought about. Now, financial services is being disrupted by digital innovators that have changed the landscape of the industry. These are no longer simply advancing banking’s businesses, but rather replacing their services completely. According to a recent PwC study, 83 percent of banking executives believe that parts of their businesses are at risk of being lost to standalone fintech companies. It is hard to imagine a world in which banks disappear completely, but to thrive harmoniously, fintech companies will have to embrace some new realities.

Customer-centricity will continue to fuel fintech disruption

A new bar has been set with regards to what customers expect from the brands they interact with. Companies like Uber and Seamless have created experiences so streamlined, personalized, and efficient that they have set the standard for what customers expect. Peer-to-peer lending was the first wave of fintech—the digital matching of lenders and borrowers has yielded benefits to both. Today, the “Uber-ization” of financial services continues to evolve the industry. Companies that are building new financial products and services need to consider the user experience as the new benchmark, and must build their offerings based on convenience, accessibility, and level of customization.

While many companies have been created to fulfill a seemingly unmet need, scale only comes from continued customer-centricity.  It’s about understanding what the customer wants and then delivering just that—and whether it be a financial institution or a startup, customer experience will continue to drive demand for products and services.

Technology-enabled disruption will come in many forms

Banks can no longer rely on their core competencies (i.e., risk management, investing, asset management, etc.) to drive sustainable growth. Digital services have become a key priority as more emerging players  draw customers away from traditional financial institutions. There are numerous technologies that are driving this disruption—machine learning and cognitive computing, big data and analytics, digital currencies and blockchain technology, mobile payments. All are attracting more and more interest and investment, and giving rise to standalone companies that can serve certain needs more effectively than incumbents.

For banks, it is not as easy as acquiring innovators or embedding a new technology into one of their platforms. Bringing this technology to the forefront of their offerings requires a cultural shift as much as a technological one. It depends on the willingness to allow for risk and experimentation, while still ensuring the customer is protected. The world is changing, and banks must agree to change along with it in order to stay relevant.  In the words of Mike Gardener, CEO of fintech company Agreement Express, “to truly modernize, [banks] have to make a choice: either they will become technology companies or they won’t. They’re either all in or all out.”

If you’re all out, partner up

Financial institutions are in a continuous race to figure out the best way to both adopt and deploy technologies that will change the way they work. Banks have begun to take bold steps to engage with fintech startups and grow in new directions—but the key is making sure these partnerships align with their overall strategies. Aside from simply acquiring emerging fintech startups, many banks have benefitted from new types of relationships, including white label partnerships, or simply negotiating deals that are beneficial to both parties.

 

Contributors

Strategy Consultant