We all can see that the financial industry is going through a transformation especially in the banking sector. The key initiators behind this transformation are the fintech companies. Fintech companies will slowly and gradually revolutionize the way we bank. This revolution will have a significant impact on financial centers but the biggest impact will be on the people working there. The bankers of the future will be very different from the bankers of today with different personalities, backgrounds, and skillsets.
To understand the changes that fintech companies are bringing, we need to first understand what is a fintech company
WHAT IS FINTECH?
THE IMPACT OF TECHNOLOGY
Because of the technological advancements and the changing needs of the customers, it may so happen that the financial partners in the future are not going to be the traditional banks but the technology firms. For instance, peer-to-peer lending platforms are offering consumers an alternative for loans that were previously available mainly at banks. Robo advisory platforms offer consumers asset management solutions that are not only transparent about what they charge you but are also substantially cheaper.
Banks these days worry less about the competing banks and more about the challengers like fintech companies and technology firms who are new entrants in the financial space and have the liberty to pick and choose the segments they want to get involved in, segments that are certainly profitable. It is very unlikely that a fintech start-up would want to take up deposits or the vault where all the assets are held. They are very happy to tackle the front end.e., the consumer interface and leave the tedious and monotonous back end to the traditional banks, like post-date settlement, reconciliation, or regulatory reporting. This trend might create a new banking model in the future where traditional banks will handle the backend and become commodity utility providers to the technology firms and fintech providers will control the front-end customer experience.
THE FINTECH REVOLUTION
The fintech industry is continuously transforming the way financial services are being delivered and consumers will be some of the biggest beneficiaries not only from the user experience perspective but also in terms of access and cost savings. Fintech companies are using differentiated products like free credit scores, high yield savings accounts, free brokerage, cryptocurrency accounts, peer to peer-to-peer payments accounts to achieve economies of scale, to provide higher efficiency and speed that has never been seen before.
Banks have also realized that the landscape is changing and in order to survive, they need to change and evolve. Some banks will succeed in this evolution and are able to embed this culture of innovation and technological advancements while others might fall behind.
To provide more value to the customers, fintech companies focus on the following parameters-
- Innovation in their offerings
- Better user experience
- Use of tech to create a safe system
- Enhanced efficiency and effectiveness
- Selecting niche segments to operate in
- Quick response and problem solving
BANK OF THE FUTURE-IT’S TIME FOR A CHANGE
Despite a growing market, many banks continue to lose clients and revenue due to inefficient and outdated systems that are costly to maintain and don’t provide the best borrower experience. To cater to these ever-changing requirements of the customer, the banks of the future will have to be changed. The 3major factors that are shaping the future are-
1. Going online from offline-More and more consumers want to take the digital route for most of their financial needs and especially since the COVID-19 pandemic.
According to BCG’s Global Retail Banking Report 2021, customers are moving to digital channels faster than they have in the past. Online banking use has risen by 23%, and mobile banking use is up by 30%. These changes are likely to be permanent, accelerating the migration to digital channels by three to four years over pre-crisis trends.
As per the survey, an average of 13% of respondents in 16 major markets used online banking for the first time during the pandemic (12% for mobile)—and in some markets, the percentage is substantially higher. Cashless payments are also receiving a major boost during the crisis. More than 20% of respondents told us that they have increased their use of digital payment solutions, such as those provided by internet banking and third-party apps, and more than 10% said the same about credit and debit cards.
2. Trust on technology-Consumers trust towards digital platforms has manifolded and they prefer to choose technological companies for their financial needs.
In US and UK, consumers ranked PayPal and Amazon nearly as high as banks for trust with their money, in Bain & Company’s survey of 133,171 banking customers in 22 countries.
3. Personalization-Personalization and easy access to tailored products will play a major role for customers in deciding the type of banking they would pursue.
According to Salesforce, an overwhelming majority of marketers (99%) believed that personalization has at least some impact on advancing customer relationships, while almost 8 in 10 (78%) believed it has a “strong” or “extremely strong” impact.https://thefinancialbrand.com/106537/banking-customer-personalization-experience-trends/
As per the Trends in Financial Services Report of 2020 by Salesforce Research-
All these changes are leading to a massive industry shift and a rise in deals made across the globe. New financial platforms and emerging fintech companies are scaling rapidly and have started competing with some of the biggest traditional banks of the world.
To step into and stay ahead in this new financial landscape, banks are going after technology platforms to add to their product capabilities and to add to their overall experiences for delivering to their customers today. They are finding ways to collaborate with the fintech companies and are working on providing a high level of service, ease of operations, and a seamless customer experience.
Moving towards Baas
According to Deloitte Digital Report 2021-Banking-as-a-Service-Explained, Banking as a Service (BaaS) is reconfiguring the banking value chain by enabling third-party distributors to offer banking products and services. Banks in particular are integrating fintech or other financial service vendor products into the banking journey, while non-financial companies are embedding banking products into their own services.
The report also speaks about how banks can establish the Baas Ecosystemthrough 4 primary configurations.
1. Provider-Only-Provide banking license, products, operations, and/or technology for use by aggregators, other banks, and NFCs. Key product lines include deposits, loans, and payments.
2. Provider-Aggregator-Provide banking license, and products, operations, and/or technology for use by other banks and NFCs. Couple their own capabilities with other vendors to compose a complete ‘out-of-the-box’ solution for distributors.
3. Distributor-Aggregator-Leverage end-customer relationships and existing own brand to offer unique financial services propositions. Create optionality for customers and/or enable novel features by adding new products or technology from multiple providers.
4. Distributor-Only-Leverage end-customer relationships to offer unique financial services propositions, provided largely ‘out-of-the-box’ by third parties. Propositions enabled can be tailored to serve either new (e.g., neo bank) or existing (e.g., traditional retailer) customers bases.
The future of banking is high tech-driven and customer-oriented. And an amalgamation of traditional banks and new-age fintech companies will pave the way to the future.