For a long time, established banks have been able to rely on their monopoly of financial services without having to invest heavily in new technologies or radical innovation. Now, the increasing prevalence of FinTech startups means that customers are being offered a growing multitude of banking alternatives that claim to be faster, cheaper and more user-friendly.
These FinTechs now pose a significant threat to traditional banks. Despite having the advantage of market saturation, it could be too expensive for banks to catch up with them technologically. In fact, China has reportedly reached a “tipping point” where the top FinTech companies now have as many clients as the top banks and, in some cases, even more.
However, in the UK, established banks still have certain advantages that startups don’t, such as a large existing customer base, market knowledge and client trust based on a long track record. Meanwhile, startups have the advantage of being able to implement rapid change but often struggle to scale. Many banks and FinTech companies are now seeing the advantages of combining their strengths in a mutually beneficial way - and in a way that benefits the customer, too.
How can banks turn the challenge posed by FinTechs into an opportunity?
Most major banks are now involved in FinTech in some way, as collaboration can allow them to provide some of their services in a more cost-effective manner. Partnerships between FinTechs and banks can take a number of forms. They can work, for example, as a platform to pull together various services from different FinTech companies. Alternatively, they could choose to collaborate with just one FinTech startup and integrate them seamlessly into their existing business.
Some banks that see the opportunity in FinTech innovation have begun investing in companies with new technologies through accelerator programmes. For example, Cutover has benefitted from being involved in both the Barclays Techstars Accelerator and Accenture’s Fintech Innovation Lab. Accelerator programmes like this help to facilitate the creation of connections between FinTech startups and the involved financial institutions, as well as offering guidance and opportunities to the startups to aid growth.
FinTechs are changing banks from the inside
Not all FinTech innovation poses a direct threat to traditional banks, as some FinTech startups provide products or services specifically developed for use by banks. These services update the way banks work internally, rather than providing a banking service directly to the customer. These forms of FinTech are beneficial to banks in helping them to modernise with new tools.
The rise of FinTech has the potential to significantly reduce the importance of banks but, at the same time, collaboration could help them improve by enabling them to provide better, faster and cheaper services. What will make the difference is the way in which banks respond to these innovations. If banks embrace FinTech and plan effectively for how new technologies can fit into their existing business, these collaborations have the potential to completely transform the world of banking, meaning a win-win-win situation for banks, FinTechs and customers.