As fintech companies continue to threaten the dominance of traditional financial institutions, many experts (and non-experts) have had quite a lot to say about the future of the industry. This blog has covered the topic in the past, too.
The conclusion? Collaboration is key to the continued survival of banks. As long as they refuse to work with fintech startups, they’ll lose ground. On the other hand, if they collaborate, everyone benefits. The bank gets to maintain its relevance, the fintech startup has help navigating regulatory issues and enjoys the greater visibility of the established company’s brand, and customers get innovative products.
Still, there are some who insist that the threat to banks has been overstated. They still maintain that traditional financial institutions will continue to dominate the industry. The following are some reasons that’s not likely to happen.
There are no sustainable strategies for halting the progress of fintech.
Banks and similar financial institutions looking to prevent fintech startups from challenging their continued success have relied on one particular strategy: acquiring those startups.
Some financial institutions acquire fintech startups in order to obtain ownership in a hot product. However, many of these acquisitions serve a different purpose: preventing the startup from doing any further damage. The banks don’t actually have any plans to further develop the product or make it available to their customers. They just want to eliminate a potential competitor before that competitor grows any larger or stronger. Acquiring them is a means of doing so.
However, this approach is not sustainable. Promising fintech startups are emerging constantly. Eventually, it won’t be economically feasible to continue acquiring all these new companies—and startups are realizing they can do fine on their own. Banks will have to learn to work with them, instead of buying them out of existence.
Customers demand convenience.
Many factors have contributed to the rise of fintech, but innovations in mobile technology have played a major role. Today’s consumers are used to a degree of convenience that was unheard of a few decades ago. Thanks to smartphones, consumers can shop, invest their money, pay bills, and so much more, all within the span of just a few minutes.
In other words, they’re not going to accept the idea that financial services won’t change with the times. As efficient, easy-to-use alternatives continue to emerge, people will embrace them. The only way for financial institutions to stay relevant is to offer a similar degree of convenience. Striking partnerships with fintech firms may be the best way for these institutions to do so. Instead of trying to compete with the newcomers, they should find ways they can both work together.
The industry is growing throughout the world.
When people think about tech revolutions, they imagine young developers in Silicon Valley offices, toiling away at the next big app.
However, fintech is unique. Although American entrepreneurs have certainly demonstrated their enthusiasm for this industry, it’s actually growing even more rapidly in other parts of the world, like Israel. Surprisingly, that’s the country where adoption of fintech products is highest among adults.
As this blog has pointed out before, countries throughout the entire African continent are also making a lot of headway in the fintech revolution. That’s partially because fintech helps underbanked and unbanked peoples gain access to financial services. In addition, mobile phone usage is relatively high in Africa and many people live in rural areas, far from a brick-and-mortar bank. Fintech provides many people’s only access to financial services. In the United States, the amount of people with limited access to such services is smaller when compared to other parts of the globe.
The fintech revolution is a truly global phenomenon because it gives previously underrepresented groups an unprecedented degree of financial freedom and influence. It will be hard for banks and similar financial institutions to compete as fintech continues to earn customers throughout the world.
The Benefits Are Clear
Fintech companies offers benefits that traditional financial institutions can’t. For example, online lending companies often approve loans that banks won’t—and they do so quickly, without cumbersome applications.
As a result, small businesses are starting to thrive in areas where they once struggled to grow. Small business owners who used to have difficulty acquiring the capital needed to expand their operations now have access to funds from alternative sources.
This is just one major benefit of the fintech revolution. As consumers begin to see the doors these technologies can open, they’ll refuse to let those doors shut. They’ll also want to take advantage of all the benefits that fintech has to offer.
Thus, banks need to adapt. They can’t stop fintech in its tracks, and they certainly can’t reverse its progress. What they can do, however, is learn to work together with these younger companies. That’s the best way to stay in business during these revolutionary times.