Fintech is a combination of the words “financial” with “technology”. It is concerned with delivery of financial products to customers using technology. Fintech could be implemented in any area – banking or insurance or investing. Though coined recently the concept is nothing new since finance industry has always been shaped and reshaped thought technology. With widespread adoption of internet and spread of smart devices the rate at which tech is impacting financial sector has changed drastically.
An example of fintech is digital wallets which allow you to make a payment without using cash or check or even a card but using a mobile phone. It goes further – car insurance providers can analyze your driving and decide your premium using data collected from your smart phone or a smart device installed in your vehicle.
Fintech synergy with banks
Fintech has been a major disruptor for the traditional banking industry. Instead of competing with fintech startups banks would gain from partnering with them. Let us look at how adoption of fintech is empowering banks –
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- Fintech improves the health of traditional banking institutions by augmenting performance and improving profits. When banks begin to accept fintech startups as collaborators instead of competitors it is a win-win situation
- Through fintech, formal banking sector can improve customer retention. Fintech firms have lot of experience in crunching data and extrapolating outcomes that banking sector till now did not have. From such analysis of data a bank can better understand how to serve its customers better.
- Fintech provides the ability to provide each customer with tailor made products. Due to its granular micro-level approach to each customer with help of fintech a bank will be able to offer better products to its customers.
- Collaboration with fintech can provide banks with processes such as secure processing of card transactions, quicker processing of loans etc. banks can leverage the tech innovations that fintech industry offers to transform its framework into one that is quicker and more malleable.
- Data from fintech can provide very accurate information about what customers are really doing with their money. Due to availability of a plethora of data fintech firms are quite easily able to track spending behavior thus making it a natural ally of the banking industry.
Optimum absorption of fintech strategy into traditional banking model
The real desired aim for banks and fintech is to find an ideal mix of fintech solutions with legacy banking systems. Fintech industries are new to the financial sector and have a different business model compared to traditional banking. There is a major transformation underway the end result of which should be absorption of new methods and not replacement of one with another.
In this brave and uncharted financial world, the main risk to banks is inactivity. While banks remain the experts in understanding risk management and complying with regulatory framework, they must never underrate the expertise their colleagues in fintech have in attracting their customers. Instead of blocking these newcomers, banks must focus on creating an open banking ecosystem that allows them to broaden their reach, deepen their relationships with their customers and accelerate innovation.
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