A few years back, it was predicted that fintech would make banks slowly disappear. Industry professionals predicted that 40% of revenues and 60% of retail bank profits were threatened by fintech rivals. But in recent years people believe that banks and fintech can work together.
People label the age of fintech in “three waves.”
The first wave was when fintech came of age in response to the 2008 financial crisis. Consumer demands were changing, and fintech met the needs of a population that were ignored by the new regulations. The changes that fintech brought disrupted specific business lines that banks profited from, creating a space for tech-enabled startups to fill. Along with the democratization of big data, fintech was becoming huge.
The second wave of fintech innovation, which many people consider to be the current state of the industry, is described as large banks trying to remain competitive amongst startups. Banks now have innovation centers that encourage the startup mentality, trying to leverage their brand with innovative improvements. However, matching the risk and agility of startups is not easy. There are also corporate politics involved. People want to protect the brand at all costs, which can be an obstacle to new ideas. This could be the reason why an established player in the industry has only been able to react to what startups have been doing, instead of producing their own developments.
The third wave will be when fintech firms and banks work together. Fintechs cannot disrupt big banks completely since the U.S. banking industry is heavily protected. The startups that recognize this will be the ones that will continue to exist, and drive positive changes.
Banks have the money and time to do what fintechs aim to achieve, but it all comes down to prioritizing and finding a balance. Banks that look to join fintechs have the incentive to create innovative solutions that are cost-effective, since fintech allows for speed in the marketplace, with seamless banking experiences and its ability for professionals to connect. This also draws in millennials, who prefer their customer experience to be convenient and quick. These partnerships create value for banks, as the solutions are usually designed around the business model, maximizing revenue and efficiency. Banks and fintech need to realize long term value, and work together to consolidate their strengths.
Author: Yvonne Kwan
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