There are over 5700 Fintech companies in America most of whom are growing at a rate much faster than any other industry. Technology has been a driving force for businesses, and the IT industry is a force to be reckoned with especially for the Finance industry. The public is losing their faith in the traditional banking system due to the number of scams taking place almost every day. The Millennial populace is more agile and accommodating today than ever, and this has given birth to rapid developments in the Financial Technology (Fintech) industry. Today, in this writeup, we will be taking a look at how new Fintech applications are challenging old and traditional ways of banking but before we do that let’s take a look at what is Fintech.
What is FinTech?
FinTech is a relatively new field. The term Fintech is the convergence of “Financial” and “Technology” and applies to any company that works with developing coming of age technologies to improve user experience and to provide unique value to customers. FinTech companies dedicate their focus on developing automation techniques that help business owners manage their businesses effectively and efficiently as well as help consumers get better services at relatively lower prices when compared to traditional banks.
At its core, FinTech companies are developers of new technologies and algorithms which Strengthen a business’s backend and allow them to deliver unique proposition which is either entirely new to the market or is a completely revamped and improved version of what is presently available.
For Consumers, FinTech Applications can vary from personal banking to Peer to Peer Payment transfer, From easy and paperless credit to Cryptocurrency and Blockchain based applications FinTech has proved to be a boon for the economy.
How has FinTech changed the Banking Scenario?
FinTech and other NBFCs have brought about a whirlwind of changes to the banking sector. These companies have enabled banking for the unbanked, i.e. the rural and uninformed population of the country. It has also improved access to services like accounting, design, and marketing for Micro and Small businesses thereby giving them access to a more level playing field against the big players of the industry.
The key change that FinTech companies have brought to the banking scenario has been the push towards a mobile-first approach with almost no physical presence at all. Traditional banks, which have been built over the years, have been relatively slow to adapt to this rapid change towards a majorly pragmatic approach and hence haven’t been able to catch up with the FinTech Unicorns just yet.
Being completely customer-centric has been another enabler for the growth of FinTech companies. Companies that deal primarily with lending and personal finance have been at the forefront of this approach and thus have garnered the most amount of investments from VCs.
Also, read: FinTech App Ideas to Start Fintech Startups in 2022
What does the Future Hold in context to the progress to FinTechs?
FinTech is still in its infancy, and the potential it holds is virtually endless. If all Fintech companies focus on market disruptions, we will see great strides in the way Millenials and Gen Y handle and manage their finances, apply for loans, transfer money to one another and invest their hard earned money.
Applications such as Robinhood which is a mobile-only trading application that enables even small investors like students to invest in stocks for almost no fee at all. Venmo, another famous and widely used peer to peer payments app, has emerged as the app of choice for students and young adults to pay each other their share from the previous evening’s bills. Lending platforms such as Lending Club and Prosper are leading the charge against traditional banks on the loans and lendings front by allowing people with a comparatively lower credit score to apply for loans. SoFi — Short for Social Finance is another company that is helping students to refinance their loans as well as providing easy access to capital to young individuals with high educational qualifications. SoFi is a unicorn in the real sense as investments in SoFi have been declared to be over $4 billion.
AI Focused Fintech upstarts are pegged as the next big thing in the Fintech Scenario according to research undertaken by the PricewaterhouseCoopers (PwC). KPMG claim according to their report that the first half of 2018 saw a total investment in Fintech companies hit a high of $57.9 Billion Globally $14.8 Billion of which was towards Fintech companies in the Americas. AR and VR Fintech companies are also on the forefront with companies catering to technologies related to Cloud tailing close as well.
Working Together
Traditional banks have been slow to adapt to this shift in the market, and they very well realise this. As a result, they are working closely with these Fintech companies to cater to a more customer-centric experience to their existing customer base. Banks such as Goldman Sachs, BNP Paribas, JP Morgan, and Chase et al. have got a Fintech startup onboard to improve their overall user experience.
Going forward, many other bigger banks may be looking towards acquiring or working with these Fintech startups to bring their products and offerings up to speed.
Advice To Older Banks To Help Stay Competitive In The Market
1. Embrace Change
Many old traditional businesses are highly resistant to change. If banks want to offer a competitive enough offer to their customers, they have to embrace the change and move with the market. Try the things Fintechs are trying, Go mobile first, reduce physical locations and even relax some of their stringent norms.
2. Move with the technology
Technology is moving at the speed of light, figuratively speaking. So, run with it. Stay agile and dynamic. See what works and what doesn’t, Be fast to adapt and fast to reject.
3. Go Mobile
2.7 billion people will have access to a smartphone by the end of 2019 according to Statista; this means that close to 40% of the total population of earth will have a smartphone. It is only natural for Fintech companies to target this market since it is multiplying and banks should also try to incorporate a mobile-first strategy for their new products and offerings.
4. Digital First
As the workforce is changing from generation X to Generation Z and Millennials, digital has become the most important avenue to reach new customers, and hence banks should focus on being digital first. A Digital first approach will also help reduce overheads and allow the team to be lean and agile.
5. Realize the potential of Artificial Intelligence and The Power of Data
There’s a gold rush for data. Every company is trying to exploit its user data to understand user behaviour and to improve their products and offerings, and Artificial Intelligence (AI) is playing a big part in it in the form of Chatbots, AI assistant and other business intelligence applications. AI is the next big then, and banks should ensure that they include AI in some form in their products.
Conclusions
In concluding this writeup, I would like to take a moment to realize how much Fintechs have impacted our lives and how far we have come in terms of ease of doing primarily everything related to finance. Apps like Venmo and PayPal have changed the peer to peer fund transfer landscape thoroughly whereas other Fintech startups have made Investing in stocks and getting loans much more accessible.
I hope I have helped you understand how FinTech is challenging old and traditional ways of banking. If you have any questions for me or if you like to reach out then feel free to leave a comment.
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