Ways in Which Banks Should Respond to Fintech Revolution

According to recent statistics, the value of fintech investments is worth more than $30 billion. This represents an increasing adoption of financial technology solutions thanks to their disruptive banking operations.

From paperless transactions, advanced financial security to banking convenience; it is quite clear why traditional anks view fintech companies as competitors.

But contrary to the perspective of conventional financial institutions, fintech companies represent an opportunity for these institutions to harness their operations. This can be achieved if only banks can adopt the following business models:

Collaborate

Most banks prefer designing their technological solutions in an attempt to beat their competitor fintech companies. While this may seem reasonable, the banks' massive size and colossal costs associated with developing tech solutions make it almost impossible. Similarly, fintech companies' effort to establish themselves as independent financial entities is futile without concrete back up from a parent bank institution.

However, through collaboration banks get to leverage the technical specialty of fintech firms. This allows management to shift focus from the competition to value generation. Additionally, with the revolutionary nature of fintech combined with large financial capability of the banks, there will be a creation of new interesting products and services. As a result, the entire financial industry will evolve easing the banking processes for customers.

Innovate

Although it may seem counter-intuitive to the earlier, ‘no-competition' notion, innovation is more of a proactive response than a competition catalyst. Since most bank operations were developed during the pre-internet stage, investing in innovation allows banks to modernize these processes.

The advantage of doing this is that banks develop a better understanding of the loopholes in these conventional processes. As such, enhancing them will be easier, giving banks efficiency that is then passed to customers through better pricing. Besides, banks have vast financial resources making innovation more achievable for them.

Invest

Investing in fintech will give banks access to technological solutions, consequently cutting down the cost of innovation. Fintech startups have an upper hand in innovation but lack capital. On the other hand, banks have vast financial resources but have a lower innovation quotient. This provides an opportunity for banks to venture their funds and in turn gain skills, technological expertise, and market share.

Imitate

Given the banking efficiency brought by fintech companies, it is safe to say that the customers expect nothing short of more improvements in the financial service industry. This will require traditional banks to join the bandwagon of technological banking if they want to retain their relevance in the financial industry. This may mean offering the same services as those offered by fintech firms in an attempt to get a fair share of the growing tech-savvy customers.

For instance, the forex trading system has mainly been dominated by fintech apps, easing up the transactions and trading costs for investors. However, a bank can also join in by offering seamless transfer of money from forex broker apps, earning banks a soft spot in the heart of technological banking.

Others ways in which bank can respond include:

• Diversify and Specialize: The long supply chain of banking services offers numerous opportunities to diversify their operations or specialize and perfect in one niche. With diversification, banks will enlarge their market reach while specialization solidifies their position in the financial world. Both action plans are meant to help banks sail smoothly through the banking turbulence caused by fintech.
• Cut the costs: The main reason why fintech services cost way less than similar services offered by the banks is that they focus on unbundling services. This means disintegrating the typical services offered by banks which results in lower cost on the customers' end.

In most cases, these ‘bundled' services offered by the conventional banks comprises of micro-services that are not essential to a customer. So, if banks could adopt the same approach and unbundle their services, they can lower the cost and consequently attract customers.

Summary

It is quite evident that fintech poses a challenge to the traditional bank's way of operation. This will require a strategic response from the banks, which entails changing their business models, lest their role is shrunk by the dynamic fintech companies.

Through collaboration with fintech startups, investing, and innovating their tech solutions, banks will not only maintain their role but also create cheaper and efficient services. Besides, banks have the advantage of providing human interaction through their front-desk; a feature that has been shunned by fintech companies.