Until recently, banks had an uninterrupted monopoly over banking, finance, loans, and investments. They have always enjoyed a higher position with the vast amount of data they hold. However, the dynamics of the financial market have changed dramatically. New regulations and ever-changing technologies have forced banks to develop consumer-centric services to sustain in this new-age disruption.
Enter the Fintech firms, who unbundled the services offered by banks with the help of technology and data-driven approach, focusing on offering enhanced user experience. They are bringing digitization to the banking services making it easier for users to manage their finances.
Why must banks collaborate?
Traditionally, banks and their services were not designed to behave like a modern technology-driven company given their legacy processes, red tape, and regulatory compliances. However, in today’s digital age, it is essential for a bank to identify customer needs and deliver gratifying experience through innovation. That is where advanced services by Fintech firms come in.
P2P lending models gaining momentum
The 2008 global financial crisis brought the p2p lending in the limelight. With simple processes and faster turnaround time, p2p lending has allowed small and medium enterprises to obtain finance easily with a few clicks. It is quite an upgrade for consumers who had to suffer from long and cumbersome processes, heavy documentation, and sluggish turnaround time. On the other hand, p2p lending platforms offer quick fundraising options, a wider pool of investors, and comparatively higher approval rates.
PSD2 and Open Banking
PSD2 came as a revolutionary directive in Europe to create safer and more innovative banking and payment. The regulation aims to drive competition for banks by allowing new players in the market to build services on top of banks’ data.
It brings a serious challenge for banks to stay relevant in this evolving market where consumers are demanding better services. They might struggle to deliver against the rising customer expectations with their complex IT environments.
How will banks be at the receiving side?
According to a survey conducted in 2016, 87% of UK financial institutions said they were able to cut costs to some extent by working with Fintech providers. In the light of evolving financial space, collaborating with Fintech firms will allow banks to:
Leverage technology – Banks could leverage AI, ML, and Data Science to capitalize on the data they hold and bring more personalized suggestions.
Save operational expenses – Advanced technologies and software will help replace the old and tiresome processes with faster and more secure solutions.
Boost revenue – With better financial services banks will be able to attract more customers. It will also ensure that banks hold a strong position in the market.
Rather than competing, both banks and Fintech ventures should acknowledge the complex ecosystem of the banking world. There is a substantial opportunity for banks to partner with new players and build new lines of financial services. With such collaborative measures, banks will be able to bring a plethora of financial solutions and find better ways to serve customers.