Financial technology (fintech) is an emerging industry utilizing innovation and technology to participate in the delivery of financial services. According to an Accenture study, investment in financial technology increased from $930 million in 2008 to more than $12 billion in 2014.
Fintech has evolved over time, with companies emerging in two categories:
- Those that use technology to compete with traditional banking services
- Those that use technology to support traditional banking services
Those in the first group could be viewed as “disruptors,” who for example provide online lending or digital wallet services. Those in the second group are viewed as “collaborators,” who leverage their entrepreneurial skills and structures to quickly deliver complementary technologies for traditional banking products and services. Banks need to explore opportunities to do business with both groups.
Traditional banking has been going through a digital transformation for several years, and it continues to evolve. The greatest challenges lie in matching the way you do business through existing systems and regulatory compliance requirements with how you integrate newer technology and the agility of solutions developed through fintech. It requires a strategic approach to managing changes in the delivery of products and services to your customers.
To improve the customer experience, you’ll need to define how you approach and target existing and new customers, the technology required to improve products and services and the internal structure required to manage the processes. For example, millennials are a growing segment that have a high level of technological understanding, along with a desire for a tailored experience.
Traditional banks and fintech companies are beginning to realize the path of collaboration is becoming the best approach. The Accenture study noted 60% of fintech investments in North America last year went to collaborative companies versus competitive ones, reversing the investment structure over the past five years. Clearly, each side brings significant skill sets and assets to the table, all of which are necessary to successfully implement solutions under development.
Recent partnerships between banks such as Chase and Citi with fintech organizations such as On Deck and Lending Club illustrate the movement toward collaboration. Fintech companies are able to take advantage of visibility to new markets through the broad customer bases of existing banks. Traditional banks are able to bring high tech competitive solutions to market in a timely manner while they continue to evaluate upgrading their internal support systems.
An old adage sums up the best way for traditional banking to view the fintech industry. “If you don’t like something, change it. If you can’t change it, change the way you think about it.”