It’s no secret that many traditional banks have been slow to adopt new technologies for the digital era. Thus, fintech startups are in a position to substantially disrupt the financial services industry. However, unlike record stores and video rental chains, it’s unlikely that any new technology or product will ever threaten the existence of banks.
In other words, we are at an interesting point in the history of the financial services industry. While fintech startups will clearly have an impact on the way that people save, spend, and invest their money in the future, we can’t reasonably expect banks to disappear forever. While it’s impossible to predict exactly how the banking industry will change in the future, one thing appears to be clear: fintech firms and traditional banks will have to find some way to coexist with one another.
Granted, the form that this coexistence will take depends primarily on consumer behavior. The free market will decide which financial services are best left to the banks and which will be taken over by newer options. That said, both banks and fintech companies must strategize to ensure that they continue to play a vital role as the landscape of the industry shifts.
The best way to achieve that goal is to embrace change. Following are some ideas for doing so:
When you look at the history of major companies, it’s clear that they can change substantially over the course of their existence. What began as a typewriter company could now be a business manufacturing personal computers. When a new solution comes along, that doesn’t necessarily mean that older companies become obsolete. It simply means they have to adapt.
Some banks have chosen to do so by employing their own development teams to build and release new fintech solutions before their competitors do. If banks recognize that their way of doing business has been replaced, then they can adjust accordingly.
While adding a fintech department to your bank is a smart way to ensure your institution’s survival in the coming years, it can be difficult to find the right people for the job if you don’t have experience in this line of work. However, identifying promising startups is fairly simple.
Banks can essentially hire staff from a major fintech startup and bring them on to help boost their technological services. Rather than focus on creating one major, successful product, banks may choose to take a holistic approach. By scouting fintech startups for talented, innovative people, they’ll bring in a new set of voices to help them restructure their entire business to accommodate the changing demands of consumers.
It’s a simple solution, one that’s sometimes merely used to eliminate a competitor—making it a short-term solution at best—but plenty of major banks have the necessary funds to purchase new startups outright.
Again, if banks take this route to keep a fintech startup from growing large enough to threaten them, it won’t solve the long-term problem. New fintech companies will continue to surface, and it won’t be long before another startup takes its place.
However, if banks were to purchase these companies with the intention of cultivating them and making them an essential part of their own business, they’ll be ready to compete with the other fintech companies that emerge in the coming years. As long as traditional banking institutions maintain a forward-thinking approach, they’ll be more likely to thrive just as they always have.
The law firm Mayer Brown recently conducted a survey to assess how traditional financial institutions have benefited from working with fintech companies, if at all. The majority of the respondents indicated what most people would expect: that such partnerships have yielded increased savings and revenue, as well as an overall reconfiguration of their brand. Banks know that their customers are looking for innovative solutions to their financial needs. The banks that have already teamed up with fresh, young startups have seen clear benefits.
In a different industry, traditional institutions might not have had time to adjust. Before those companies could alter their approach, their customers would have largely already embraced a new competitor.
This is highly unlikely to occur in the banking industry. At the same time, there’s no denying that fintech’s overall impact on the financial services industry will be revolutionary. Some banks will fail to adapt. The ones that succeed will be those that start planning their new strategies now. Whether they attempt to create the next big fintech product, hire experts to improve their overall technology, or buy out promising startups, those banks that take fast, decisive, and forward-thinking action will ultimately survive.