Once upon a time, traditional banks could look the other way when it came to FinTechs. But that’s no longer been the case for a long time.
Today’s customers are far-removed from traditional financial clients of years past. As younger generations enter into finance, the demand for digital financial services and a greater emphasis on technological advancement has increased significantly. This has resulted in banks and FinTechs forming closer relationships – both as collaborators and as competitors.
In this article, we will discuss the evolving and growing relationship between traditional banks and FinTechs. As we explore this topic, we will strive to assess whether these two entities can co-exist and collaborate in harmony, or if they are bound to be competitors until a conquerer arises amongst the two.
The Growing Prevalence of FinTechs
FinTechs have taken the financial industry by storm – especially in the past few years.
According to Statista, there were more than 10,000 FinTech startups in the Americas alone as of February 2021, with that number expected to continue rising through 2021 and beyond. The Americas are, in fact, the leading adopters of FinTech, with the majority of startups existing in this region.
With financial technology becoming more readily available to consumers, this has forced banks to take a much more active stance either with or against FinTechs.
This leads us to the primary question at hand: Are FinTechs and banks bound to remain competitors, or will FinTechs reshape the financial industry through collaboration and partnership with banks?
Opportunities for Collaboration Between FinTechs and Traditional Banks
To examine whether or not collaboration is possible between FinTechs and traditional banks, let’s look at a few examples of opportunities where working with FinTechs is almost a necessity.
A major advantage of banks working with FinTechs is that they gain the ability to access advanced technologies that are becoming increasingly popular in the industry. These examples are centered around services and activities that are crucial for financial institutions to embrace and adopt in this current moment.
Without further ado, here are 3 examples in which collaboration between FinTechs and banks provides far greater opportunities than competition:
1. Implementing Digital Transformation
For banks and financial institutions, the easiest path towards implementing a digital transformation is through partnership with a reliable FinTech.
As customers grow exceedingly expectant of digital financial services, completing a digital transformation is more important than ever for banks. However, performing such a transformation without third-party assistance is quite the task – and the investment.
With FinTechs, comparatively, resources and specialized staff are outsourced from a wide pool of talent, allowing banks to access the tools and expertise they need without having to make costly investments onboarding new employees or purchasing the necessary software and hardware.
2. Enabling Open Banking
As more third-party FinTech applications become available to customers – such as payment or digital wallet apps – customers are also growing more interested in open banking.
Open banking allows customers to enable their financial service providers to share their personal data with each other. This can significantly improve the efficiency and immediacy of digital transactions and financial activities.
Not only are FinTechs a major reason behind why open banking is growing is customer popularity but they are also the key enabler to it. Powerful cloud-based infrastructures and applications supported by AI make it simpler for banks to enable open banking – and FinTechs can provide these tools.
3. Personalizing Customer Experiences
Along with expecting an increased emphasis on digital services, customers within the financial industry are now also seeking institutions that value personalized experiences and recommendations.
The tools and technologies available through FinTech partnerships make achieving a customer-centric approach much simpler for financial institutions. With predictive technology and machine learning especially, gaining valuable customer data and insights has never been easier.
Plus, personalizing the customer experience also boosts engagement and retention – two highly important factors in an industry that have become overwhelmingly competitive where customers have more choices available to them than ever before.
Can FinTechs and banks collaborate successfully, or are they fated to stand in competition with one another forever?
For banks who recognize the importance of adopting digital business models, FinTechs make for great and profitable partnerships.