Cultural changes are challenging the long-standing loyalty that consumers once had to their bank. The transformation has been driven by the rapid development in technology, along with evolving attitudes toward customer experience, especially amongst younger
people. This brings key opportunities for both the more innovative traditional banks and the agile fintech entrants.
The financial industry’s cultural shift is similar to the transformation witnessed in the auto sector, where a focus on software has become a critical product component for the manufacturers – an area of expertise the established car companies don’t typically
have. Traditional banks are held back by their resistance to outsourcing IT development and reluctance to embrace best-in-class components and modern tech stacks. Learning from FinTech collaborations and embracing their innovative solutions can be an effective
way for banks to stay relevant, especially when it concerns user experience. The traditional view that banks must maintain proprietary control over their entire technology stack is outdated and must be challenged. Incorporating components from specialized
technology providers is emerging as a valuable option, offering banks the flexibility to integrate best-in-class solutions without the need for full ownership.
From a consumer perspective, there are more choices and it’s easier to switch than ever before. Decisions are driven by who has the best and most convenient products, and long history and previous relationship with a bank is becoming less relevant. While some
traditional bank executives dismiss challenger banks that focus on areas like current accounts, they may be overlooking the spearhead effect challenger banks have with their ease of use and innovation, which they use to establish relationships with their customers.
This has opened avenues for FinTech companies to capitalize on the shortcomings of traditional banks in providing cutting-edge online and digital services.
While some traditional banks are successfully competing directly with FinTech challengers (for example JP Morgan Chase), many are falling behind. Executives often grapple with the need for different skill sets in the face of evolving user experiences and technological
advancements. Collaborating with FinTech companies can offer a solution, allowing banks to absorb new change and combine strengths to provide compelling customer-centric products. This is also vital for business services, as people are starting to select tools
based on what’s actually the most effective to get their jobs done, as part of the consumerisation of B2B solutions.
There is also a notable difference in global ambitions between traditional banks and FinTech startups. While most banks tend to focus on local markets, FinTech startups have global aspirations from their inception as they are built to scale. There is opportunity
in creating partnerships that leverage strengths of both the incumbents and innovators, to create multinational financial entities blending both ambition and stability.
Embedded payments and integrating financial services directly into the buying process presents further opportunities and threats for traditional banks. Adapting to this change is important for banks to remain relevant in an environment where the purchases of
financial services are increasingly integrated within the transaction. Despite the challenges, traditional banks hold an important advantage in risk management and compliance capabilities, which is also something regulators will increasingly require for new
services such as BNPL.
Relationships between traditional banks and fintech companies present both challenges and opportunities. By recognizing the strengths of each and building collaborations, the financial sector has the potential to begin a new era of financial services, offering
strengths from both sides to consumers worldwide.
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- Source: https://www.finextra.com/blogposting/25693/incumbents-and-innovators-embracing-partnerships?utm_medium=rssfinextra&utm_source=finextrablogs
