Will Fintech Kill The Banks?
Fintech can give new digital tools to the banks…a new banking model of the future
If it’s trust than why we are debating about why this fintech thing happening to the banks…BANKS weren’t much loved before 2007, and the bailing-out of a bunch of them in the financial crisis hardly helped endear them to the public. A slew of startups in the “fintech” space—short for “financial technology”—now reckon they can do better.
What Is Fintech? – Understanding the basics
‘Fintech’ is a term increasingly branded in the media and in technology circles. Yet despite being in vogue, it’s a term many including tech savvy and clued up entrepreneurs – don’t quite have a handle on.
Indeed, it is a fresh enough phrase to not yet feature in the online version of the Oxford dictionary. However, the importance cannot be denied. Fintech is an area that is radically changing how we live as society and how we do business professionally.
To put it in a layman terms, “Financial technology, also known as Fintech, it is a line of business that uses technology to make financial services more efficient. These financial technology companies are usually startups trying to dis-intermediate obligatory financial systems and challenge traditional corporations that are less reliant on software”
The world is far more connected today than it was 15 or 20 years ago. The tools that are available have changed the scenario of doing banking and business, the regulatory environment has changed, and people are way more comfortable managing their money and business online.
Fintech Startups won’t kill banks….but aging IT will….
Fintech startups can cut out the need for the services of the big banks while simply piggy-backing on their existing infrastructure, the banks could find themselves losing market share to more streamlined and user-friendly digital services. “Banking is necessary – banks are not”
The Typical 9 to 5 Banking
The systems banks use were built for 9 to 5 branch banking. They were also built for specific purposes – term deposits, standing orders, credit cards, etc. without regard to the holistic customer relationship.
The problem is that banking is now 24/7, delivered increasingly over digital channels and customers expect an e-commerce-like online experience that is rich and immediate.
The situation presents banks with 4 major issues
Risk and complexity: A typical universal bank runs more than 180 applications, written in a piecemeal fashion over decades in languages now not easily supported. This obviously greatly restricts flexibility, but it also creates thousands of points of failure.
Scalability: Systems can’t keep up with the exponential growth in volumes as banking digitizes, consumers are interacting with their banks more often.
Opportunity cost: The cost of maintaining aging legacy systems eats up more than 75% of banks’ IT budgets, leaving little for value-enhancing expenditure.
An expectation gap: Aging IT systems can’t provide the rich banking experiences that customers want. Customers want banks to perform the role of infomediaries, helping them to make better financial and commercial decisions. To achieve this, banks need modern architect-ed, integrated and real-time systems.
Where Is Fintech Innovation Happening?
The term ‘Fintech’ has become quite popular in recent times and is commonly used in mass media to refer to a new type of companies specializing in applying technology to improve financial services and the impact this new players are having on the traditional banking sector.
These companies are growing everywhere with relatively easy access to Venture Capital funds and with value propositions focused on specific market niches. It’s often said that Fintech Companies have created a strong disruption on the market and are threatening the future position of the banks for their greater specialization and understanding of new customer generation. However, how true is this statement? Are these new companies really being able to compete with traditional banks?
All over the world, people and industries are seeing the dramatic effect of technology. As innovations are developed, new industries, services and business models are also created and financial technology is at the forefront
All this is putting pressure on banks, not least because few consumers who use snazzy fintech services ever return to their banks thereafter. But it is hard to see fintech killing them off. For one, though they are growing fast the startups are still tiny.
Why Fintech Seems To Be The Most Promising?
In some respects fintech is being revolutionized by entrepreneurs for entrepreneurs. You may get your next business loan from fintech companies like Loantap.in instead of a it-takes-forever bank; rather than scrambling to interest venture capital firms or other traditional investors, you can now look toward fintech companies for finance.
Your company’s transactions could be processed with fewer headaches and you can manage your money in a hassle free manner.
Fintech doesn’t kill banks, it might instead sap the sector’s profitability. A future as a sort of financial utility—ubiquitous but heavily regulated, unglamorous and marginally profitable—is hardly a gratifying outcome for banks.
The Bank of The Future
Under the pressure from the new competitors, technological development and changes in customer demands, the financial services industry is evolving towards an increasingly modular structure with a separation between the creators of financial products and the distributors of such products.
In other words, the model of a vertically integrated bank covering all products and customer segments will not be the dominant structure in a the incoming years, and will be replaced by a modular and more flexible bank whose key elements will be a ‘core’ banking open platform accessible with an API that connect to external services, a banking license and compliance associated processes, the customer database and the associated CRM to manage them.
The bank will provide basic services (accounts, cards) and other advanced services will be offered by other financial institutions through the open API to have access to the best products at any time.
Fintech Startups Are Changing Finance For Better
With the rising of Fintech competitors, but it’s clear that traditional banks will have to change radically in their digital transformation process, delivering new value propositions and strategies to capture and serve their younger customers.
As in any industry transformation process, some banks will be able to successfully manage this process and remain relevant and others will not succeed and will be absorbed by other entities. However, to argue against the most pessimistic predictions, traditional banks will not disappear in favor of Fintech companies, they will simply have to evolve and adapt to new competitors and market conditions.
The rise of Fintech has changed the way companies do business. The traditional model of a new business turning directly to its local high street bank and/or a conventional investor is no longer the only game in town.
From crowd sourcing to mobile payments, there has never been as much choice to entrepreneurs as there is presently. It’s never been cheaper to not only set-up your business, but also to expand it.
Fintech firms can pass on huge savings as they are far more agile than traditional banks, not having the same overheads and commitment banks are blessed (and burdened) with. Their relative lack of size also allows them to innovate and adapt in a way bigger corporations can only dream of.
Brief About LoanTap
Loantap is an online platform committed to deliver flexible loan products to salaried professionals. We innovate in an otherwise dull loan segment, to deliver smart products for millennials. The idea is to use technology for building flexibility in products, without adding cost to it.
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