- Traditional banks are increasingly under pressure from disruptive FinTech competitors who are rewriting the rules
- But the growing influence of startups doesn’t have to mean the decline of the big financial players in the face of faster innovation
- And it could represent a huge opportunity rather than a challenge for the incumbents
The financial industry has always been driven by technology, but the vast potential of agile FinTech is now going way beyond that and threatening to actively steal a march on the traditional incumbents.
Digital disruption is of course the name of the game, and it represents an unsettling time for banks, with some reports suggesting that up to 30 per cent of current employees could lose their jobs to technology by 2025.
Meanwhile, FinTech investment has reportedly soared from $1.8billion in 2010 to $19billion in 2015, with the majority of this being focused on payments. Evidently, startups are picking up customers, and momentum, at an incredible rate.
While it’s clear that traditional banks still currently remain in the driving seat, FinTech is quickly closing the gap, and many predict that it will soon take the lead – not an unreasonable assumption given the huge growth in investment.
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Indeed, as customers continue to shift their behaviour and look for increasingly faster, more accessible, more personalised solutions, it’s clear that banks are already playing catch-up with their digital strategies. FinTech companies are simply better at providing the digital applications and services that time-poor millennials want.
It’s essentially a case of better manoeuvrability; due to their smaller size, FinTech companies are able to react quicker to market changes.
Nevertheless, the financial industry incumbents are starting to take bold steps as they look to better engage with emerging innovations – they need to not only improve the customer experience but how they transition away from legacy models, and it’s arguably an opportunity rather than a challenge.
Faced with the risk of obsolescence, the banks are having to open up their intellectual property to outside innovators, judging the risk of compromise to be less of a threat than that of falling behind entirely.
In other words, FinTech alliances are having to be formed through necessity, but it’s in reality something of a win-win situation allowing each party to leverage the strengths of the other – the banks gain cutting edge ideas, while FinTech companies enjoy the financial rewards of working with a bigger partner with a large customer base.
Embracing such collaborative alliances creates a fertile environment for innovation where banks can shake themselves out of complacency, disrupt their own business model, and deliver meaningful services that customers really want, instead of sitting back and watching the competition grab a key stranglehold.
This is key to developing the blockchain technology and artificial intelligence that customers demand for the near real-time transfer of data, delivering instant resolution to banking transactions.
Ultimately, with millennials’service demands becoming increasingly sophisticated, traditional banks must adapt now – and in ways that may be entirely alien to them – in order to successfullydevelop the right technologies sooner rather than later.
Only by opening their doors to the ideas of others and embracing external input, can they expect to continue competing on a level playing field.