Fintech companies and banks might seem to always be at loggerheads—but do you really have to pick a side? Traditional banks are the go-to reliable financial institution for business owners and consumers.
Fintech companies, on the other hand, are seen as the young kids on the block. Although banks used to be wary of fintech companies, the financial sector seems to be loosening its reins on tradition.
Why now?
Banks have long been the juggernauts of the financial services industry. Steadfast, trustworthy and regulated, their presence has pushed banking to become one of the biggest industries in the modern world.
Big financial institutions struggle to keep up with changes in the marketplace. By spending billions a year to maintain legacy operating systems, the same business processes that once were the fundamentals of banking now leave little room for product innovation.
Even before COVID-19, consumer patterns were already evolving alongside digital technology transformations. Fintech products such as contactless payments, peer-to-peer fund transfers and real-time service channels have started to disrupt the financial services scene.
This is against the backdrop of an increasingly digitised generation. Around 82 per cent of Singaporeans own a smartphone, and around Southeast Asia, the number is even higher with most frequently using their devices to access search engines and social networks.
The frequency at which consumers engage with their devices has also turned fintech companies into enticing financial providers for the on-the-go customer.
COVID-19 is accelerating change, making the future happens faster. It’s safe to say that the pandemic disrupted many day-to-day processes—including financial services. As people were now relegated to their homes, financial institutions scrambled to find innovative digital solutions for their products.
A survey done by Ernst and Young highlights that 27 per cent of consumers agree that banks have to be more flexible in helping customers become better prepared in times of uncertainty and 65 per cent of businesses mentioned they are likely to try digital financial services within the next 12 months in a recent Deloitte survey.
So what’s fascinating about fintech?
Small and nimble, fintech platform has infiltrated the financial processes of many consumers. fintech platforms have joined the financial service foray by optimising financial services.
Using algorithms, applications and cloud-based tools, tasks such as using a financial tracker to monitor business expenses, managing investments, and crypto exchanges have been made easier for businesses and customers alike.
Biggest pain points that fintech resolve
- Convenience: Track financial transactions with a tap —anywhere and anytime
- Accessibility: Access to loans, peer to peer transfers, and easy to digest banking options to those who have disabilities or have limited financial awareness.
- Innovation: Being tech-backed and automation facing, fintech is on the hunt to provide quality solutions at lower costs.
Fintechs seduce consumers with their functionality and accessibility, leveraging on big data and algorithms to streamline financial services. The innovation that fintech startups thrive on also allows their products to integrate into large digital ecosystems.
The agility that this provides to companies makes it both convenient and cost-effective to do business. Companies such as Transferwise and Aspire target gaps left behind by banks, by offering products that slice through hefty processes required to start and perform business dealings.
By cutting down on the time taken to send a foreign transfer or open a business bank account, fintech startups also slash operating costs for companies.
Banks bring with them great experience and expertise; fintech companies complement this by by bringing technology speed to layer innovative products to traditional financial service offerings. In a world where customers demand speed, simplicity, and customer-centric products, fintech ranks quite high for personalised products.
Using social media as a platform to connect with potential customers also brands fintech companies and approachable, in contrast to the daunting persona of a financial institution.
Is collaboration on the cards for banks and fintech?
Most definitely—the new future of financial services doesn’t seem like it can do without either.
The real threat to the banking industry isn’t fintech companies but Big Tech firms such as Google, Apple and Alibaba. These huge technology firms already have the clientele, an army of developers, and huge stakes in various complementary industries.
With a leg (or two) in e-commerce, cloud services, and advertising services, these tech giants come armed and ready with the ability to take their slice of the financial product pie.
That’s precisely why it’s essential for collaboration between banks and fintech firms. In the wake of COVID-19, tech-fuelled transactions and contactless payments will more than ever be a staple in the backend of bank products.
Contactless payment apps such as GooglePay and ApplePay are already rising in ranks, alongside consumer banking products such as Paylah! in Singapore.
To stay ahead of the curve, banks must leverage the benefits of fintech collaboration. fintech startups bypass regulatory bank processes to connect directly with users—similar to the high penetration rates Big Tech firms possess.
Also Read: Fintech and banks: collaboration or competition?
Redefining the future of finance
According to a study done by PwC, Banks are becoming the most active of all financial sectors in exploring partnership opportunities with fintech firms. This includes setting up venture funds to invest in fintech opportunities.
More than 70 per cent of banks predict that over 60 per cent of their clientele will be using mobile-based applications as part of their financial process within the next five years.
This makes digitally adept fintech firms the perfect partner in crime to take on the big guns.
The future of finance does seem to be littered with technological advancement. As tech infiltrates almost every aspect of our daily lives, both fintech and banks will have to come up with novel solutions to tap into digital ecosystems.
This includes managing risks—data breaches, security, verification systems—that arise from new developments.
Nevertheless …
The next step for financial services has to be partnerships. While banks can definitely benefit from the innovation and product development aspect of fintech startups, fintech companies can also leverage from the bank balance sheet and compliance expertise.
That being said, partnerships are no walk in the park for both fintech firms and banks. It’s only with shared values and goals this allied relationship can truly redefine the future path of finance.
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