The fintech revolution is in full swing, and traditional financial institutions have realized they must adapt in order to stay relevant in a changing market. This adaptation may involve cooperation between banks and fintech startups.
Startups can offer enhanced services thanks to new technology. However, banks can help startups navigate the regulations that naturally apply to any business offering a financial service.
Threat or Opportunity? A Matter of Perspective
Some traditional financial institutions perceive the fintech revolution as a threat. However, it’s more appropriate to recognize the benefits these new products offer. Fintech has driven innovation in the financial services industry. Startups are not the only businesses innovating, either. Banks and other existing financial institutions have made improvements and embraced new technologies in an effort to keep up with the changing times.
This is good for customers. Fintech products are popular because they offer convenient and user-friendly alternatives to traditional financial services. Additionally, from the right perspective, it’s also possible to see this new climate of innovation as being good for financial institutions as well.
For a long period of time, banks’ dominance within the industry went unchallenged. That’s why so many institutions failed to apply technology to their services as comprehensively as possible. Now that banks are forced to compete with new startups, banks are no longer stagnant. Instead, they are actively seeking ways to better serve their customers.
Innovation Benefits Customers and Institutions
These changes may be difficult to implement at first. When a financial institution is entrenched in certain ways of doing business, shifting to new models is a challenge. That said, financial institutions that do make an attempt to innovate will be likely to earn the approval of customers.
Banks can avoid losing customers to startups if they leverage technology to the customer’s benefit. No one feels the need to adopt a new financial service when the business they currently rely on for financial services is adapting and innovating at an appropriate pace.
Traditional financial institutions can improve their own internal operations by adopting a fintech-friendly mindset. Capital One is an example of a business that’s already made strides in this direction. The company’s Big Data Lab exists to uncover new ways of enhancing its operations and services via data-driven analytics. In other words, when existing financial titans seek out new ways to take advantage of emerging technologies, they can identify new ways to boost their own revenue.
Emerging Technologies Offer Novelty
Many of these emerging technologies also offer a degree of novelty that can impress existing customers and encourage them to make greater use of a bank’s services. For instance, some banks have begun to use augmented reality technology to develop and release apps that help customers find nearby ATMs and branches in unfamiliar areas.
Augmented reality (AR) was made popular by apps like Pokemon Go! and Snapchat. The technology involves superimposing virtual elements (usually in the form of visuals) on top of the real world as it is displayed on a phone or tablet’s screen.
These new AR bank apps provide users directions to ATMs or branches in a dynamic and convenient way that allows them to stand out among the competition. By developing and offering useful features that showcase the latest technologies, traditional financial institutions will be more likely to maintain customer loyalty.
EY’s Global Banking Outlook 2018 Survey
Fortunately, leaders at traditional financial institutions appear to understand this. According to EY’s Global Banking Outlook 2018 survey, major banks throughout the world believe that it is important to innovate if they are to compete with startups.
The survey also indicates why some traditional banks may have been slow to embrace the benefits emerging technologies can offer. According to the survey, many working in the traditional financial services industry have recently grown optimistic about their future, thanks to a decreased focus on regulation.
After the financial crisis, many existing institutions felt pressure to devote resources towards ensuring regulatory compliance. Now that they’ve done so, they feel free to direct those resources towards innovation.
The Future of Financial Services
In other words, we may very well see traditional banks increasing their funding of fintech products dramatically in the near future. It will be interesting to see how this impacts their relationships with fintech startups.
Cooperation is likely the key to banks’ survival. However, there’s also a chance some banks will be able to compete with startups independently if they focus on innovation. This will undoubtedly have a reciprocal impact on the fintech industry. We may soon learn exactly what that impact will be.