Why are Fintechs a danger for traditional banks?

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Over the past few years, banks have suffered as fintechs have provided people with features that were previously inaccessible to them.

The threat of FinTech to banks has led them to rethink their service delivery and administration model.

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Traditional methods of saving were to deposit money in the bank and relax while our savings earned interest over a period of time. While these banks operated in traditional ways, fintechs brought a wave of transformation that sounded alarm bells across the banking industry. One of the reasons fintechs have instantly gained notoriety is their ability to provide people with features that traditional banks did not. The threat of fintech to banks has become a warning sign for conventional banks around the world, dragging down conventional banking business as traditional banking methods appear to be becoming obsolete.

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What is the Fintech threat for banks?

Even though banks have been the traditional method of conducting financial transactions and saving money, fintech has caused a wave of insecurity among bankers as conventional banking models have begun to dwindle. Apart from eliminating traditional banking models, fintech organizations are also focusing on providing customers with features that were not available before.

Fintech companies introduced dynamic payment systems that allowed their users to conduct their financial transactions without the intervention of an intermediary and reduced the transaction fees imposed on them by traditional banks. The speed of transactions has also increased with these fintechs. Technologies such as blockchain in the financial sector have helped several fintech companies around the world to satisfy and retain their customers. This technology has helped fintech organizations improve transaction transparency in their payment systems, leading to improved user interaction and experience.

How to avoid the Fintech threat for banks?

With fintech companies gaining momentum in a short time, traditional banks have begun to realize the importance of meeting current market demands and regaining customer loyalty. As conventional banks have set the standards for the development and implementation of financial services such as ATMs, remote deposit capture and online banking, their innovation skills are reliable. Building their services like fintech companies can significantly help traditional banks avoid the risks posed by fintechs. Developing and implementing similar services could be difficult for traditional banking institutions, but could bring them many long-term benefits.

If a bank does not want to build a fintech-like service portal, it can opt to buy a specific fintech as a whole. The challenge traditional banks would face here is that they can buy a fintech organization that is still in its infancy and focus on growing the same business alongside their bank’s progress. If they choose to buy a well-established fintech, the banks may be charged large sums as a premium, which would result in unfairness against shareholders.

Partnership models are all the rage among some of the major traditional banks. These banks are focused on partnering with fintech companies rather than buying or building one for themselves. With these fintech organizations partnering alongside their banks, bringing banking services and products to market becomes easier.

The fintech threat is real and banks need to start looking for viable options to work in the market alongside fintechs. It’s time for banks to think about which fintech companies they can target to partner with, buy or just develop a similar fintech portal for their banks that can bring their organization to life and create digital banking value.

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