For many years, customers have tolerated the outdated, rickety technology found in traditional banking.
That’s changing with fintech, which has revolutionized finance by providing efficient, user-friendly services at customers’ fingertips via computers and mobile devices. Indeed, the number of fintech users worldwide is set to increase annually – by 2027, it’s projected to cross 7 billion.
However, this poses a challenge to banks, which are struggling to keep up with all this shiny new technology and offer customers the kind of service they want. You’ve probably already come across articles with titles like “The Threat Fintech Poses to Traditional Banking” and “Move Over, Banks: There’s a New Kid on the Block”.
But does it have to be fintech vs banks? Or can they work collaboratively to offer customers streamlined financial services?
What’s the Deal With Fintech?
“Fintech” is a combination of the words “financial” and “technology”. It refers to new technologies that improve and automate delivery and use of financial products and services. Generally, the technology is accessible via computers or mobile devices.
Gradually, fintech has come to focus on consumer-oriented services, and is currently used in many industries, including but not limited to investment management, fundraising, retail banking, and financial services for individuals.
The financial services industry has, of course, had a rich history of innovation (think Internet banking and credit cards). However, fintech (or, more specifically, fintech companies) is often associated with new start-ups.
The Bridge Between Fintech vs Banks
In 2021, fintech accounted for a fifth of global venture funding. Such record levels of funding have created stiff competition for traditional banks, as consumers flock to fintech services; the percentage of Gen Zers who had a primary checking account with a premier global bank dropped from 35% in 2020 to 25% in 2022.
This begs the question: What do customers want that traditional banks are not providing?
One recent study reports that customers crave remote solutions. 71% prefer multi-channel interactions, and 25% prefer a wholly digitally enabled banking journey, with remote human assistance where required.
Payment trends, too, are a-changing. Just some of them are:
Frictionless payment methods (one-click payments, mobile/digital wallets, in-app purchases, auto-renewed subscriptions, etc.)
Digital wallets (Google Pay, Apple Pay, Venmo, Amazon Pay, etc.)
The popularity of BNPL (Buy Now, Pay Later) companies due to financial uncertainty
Payment apps that act as a gateway to a vast number of products and services, such as China’s WeChat
To keep up with both trends and customers’ demand for user-friendliness, speed, and low costs, traditional financial service providers need to integrate technology into their operations and services.
This way, banks will be able to offer the easy, frictionless experience customers now expect. Clients don’t want to plod all the way to a branch an hour’s drive away just to open a new account. Especially not when Amazon doesn’t expect them to visit a branch to top up their digital wallet.
Thus, it doesn’t have to be fintech vs banks. Instead, fintech can bridge the gap between what modern consumers expect and what traditional banks offer.
And many banks are rising to the occasion. Thanks to technologies such as analytics, artificial intelligence, and machine learning, banks have begun to evolve rapidly. For example, with cutting-edge, powerful reconciliation automation tools such as CrushErrors, financial institutions can reconcile vast amounts of data and save hundreds of hours.
Banks have even started acquiring fintech companies to broaden or streamline their services. Ultimately, the competition for fintechs is intense, so many fintech companies will struggle to stay afloat while others thrive.
However, this presents a unique opportunity for fintech companies and banks to join hands and collectively adapt to a rapidly changing digital world.
Advantages of Collaboration Between Banks and Fintech
When it comes to fintech vs banks, well, it doesn’t need to be a competition.
Traditional banks can benefit immensely from the agility and innovation of fintech. Conversely, consumers gain confidence in fintech and fintech companies thanks to traditional banks’ established network, customer loyalty, and business size.
Here are some advantages of collaboration between banking and fintech:
Streamlining of the overall financial system due to the advanced technology fintech can bring to traditional banking.
Banks will find it easier to build financial systems thanks to their massive deposits.
Trust can be built if fintech partners up with banks, as the same government institutes will regulate them.
Not All Traditional Banks Want to Collaborate
Despite the advantages of collaboration, few banks have set up their own fintech laboratories. The majority of banks that have taken notice of fintech have invested in start-ups or set up fintech accelerators.
Generally, banks have mostly been dismissive of the fintech movement and have neither wholeheartedly embraced nor attacked it.
Here are some ways banks are responding to financial technology companies:
Stopping investing in start-ups. By doing so, they send a defeatist message and thin the stream of funds and resources. The alternative here is to set up independent labs that seek to identify and correct weaknesses in banks’ current business models.
Taking a clear stance. Directly competing with fintech start-ups through innovation, or sticking to traditional, but still lucrative, banking.
Doing away with inefficient cross-subsidization. Banks are losing their sheen to younger talent, and need to revise their structures and raise base salaries to what start-ups can offer. Furthermore, technological innovators are lauded in start-ups and play key roles; in banks, they are still treated as disposable support staff.
Conclusion to Fintech vs Traditional Banks
Traditionally, banks have used division of labor to specialize in certain tasks. This has its benefits; but over the years, it has become inflexible and expensive for customers. In a sense, the fintech revolution came about due to the shortcomings of traditional banking.
Whether fintech companies and banks choose to collaborate or compete, both are here to stay. At NextGen Accounting, we understand their difficulties.
That’s why we provide credit card reconciliation services, bank reconciliation services, audit and anti-fraud assurance, financial consulting, and financial reporting. Our services are specially tailored to firms with vast amounts of data that are extremely difficult to reconcile.
To give you the fastest and most accurate reconciliation, we use our patented software CrushErrors, which you can also obtain as a product if you’d rather conduct reconciliations in-house.