How is Fintech Changing the Future of Traditional Banks?
Arianne King & Ava Solouk
Financial technology (Fintech) is fundamentally changing the way society spends, saves and manages money.
What is Fintech?
Fintech is the innovative use of technology to improve and automate the delivery of financial services. According to KPMG’s Fintech 100, the leading sectors where Fintech companies are most common are payments and transactions, wealth management, insurance and lending. Research shows that the global pandemic has accelerated digital adoption by five years, due to the increase in use of online services and contactless payments arising from consumers being confined to their homes.
Furthermore, the expansion of Fintech is providing ways to improve the services banks provide to their customers through the use of mobile apps, which enable customers to view their bank accounts in real-time; reducing fraud risk with the help of enterprise platforms; and with the use of digital tools such as chatbots which are enhancing customer experience. However, FinTech is proving to provide fierce competition to traditional banking and financial services. For instance, Monzo and Starling Bank, both entirely digital banks, have won ‘Best British Bank’ and ‘Best Current Account’ at the British Bank Awards, thus potentially threatening the future of traditional banks.
How is Fintech Impacting the Future of Banking?
Fintech has provided the banking sector with a wide range of benefits which may ultimately enhance customer experience whilst cutting costs. However, if traditional banks do not use technology as a catalyst for change and be quick to adapt, they risk being left behind. In many traditional banks, the ability to use technology is limited by seemingly outdated systems and regulatory red tape. Therefore, it is difficult for traditional banks to compete with Fintech companies as they cannot easily release new services owing to their need to be process oriented. This includes requiring physical presence in order to validate identity, whereas Fintech companies’ validation processes are entirely digital. This allows Fintech companies to catapult and leave behind traditional banks that now seem to be stuck in the past.
Can Traditional Banks Survive in a Fintech-Driven Future?
To help traditional banks survive the fierce competition, one strategy that can be adopted revolves around improving the effectiveness and speed of banking infrastructures. This approach has already been utilised by JPMorgan in a bid to keep up with competition.
Despite the fact that Fintech companies are growing rapidly, traditional banks are not accepting defeat, the future is online and traditional banks are aware of the need to, and willing to, adapt. This has resulted in the vast majority of traditional banks having online platforms where customers can access the majority of the bank’s facilities. Some banks, such as NatWest allow customers to withdraw money from cash machines using a unique digital code generated on the individual’s app without needing their credit/debit card.
Although, the rise of Fintech companies has threatened traditional banks, it is unlikely that they will be completely replaced any time soon. Traditional banks have the advantage of expert knowledge from years of experience and are far more familiar to, and trusted by, the majority than the new Fintech companies. They also allow those who fear or are unable to use technology to have access to banking facilities.
For more information on this, please contact Arianne King at firstname.lastname@example.org