Not until too long ago, banks and fintech used to see each other as competitors, but now the tendency is to increasingly work together! And Purpl is no exception as our Co-founder & CEO explains in this piece for Entrepreneur Magazine.
FinTech refers to technology that allows business owners, corporations, and consumers to effortlessly control their financial and business activities through the use of a computer or different devices such as a mobile phone or a tablet. FinTech is a thriving industry that combines financial offerings and technology to assist people and businesses manage payment and financing.
The Disruption of FinTech
The number of FinTech companies in the EMEA region nearly tripled between 2018 and 2021, according to Statista. According to McKinsey, during the first few months of COVID-19, the use of mobile banking channels increased by 20-50%, and this trend is expected to continue even after the pandemic has ended. Financial institutions can incorporate technology into their services to meet the demands of their clients for speed, efficiency, and a better user experience. As a result, they will be able to provide customers with the frictionless experience that they have grown to expect. FinTech is bridging the gap between what traditional banks are required to offer and what modern customers have come to expect.
The Key Differences between Traditional Banks and FinTechs
Approaches to Traditional Practices
Legacy systems and the regulatory environment constrain banks’ ability to implement new technology in a timely manner. As a result, banks are unable to launch new services or solutions that address client needs or challenges as quickly as Fintech companies. Banks, in comparison to FinTech, are more process-oriented. FinTech is innovative and customer-focused by simplifying complex financial processes to make them more accessible to the public.
FinTech apps such as Purpl, employ cutting-edge technology such as artificial intelligence, big data, and cloud computing to provide customers with an exceptional user experience. It values consistency, personalization, speed, and relevance. Due to their optimized corporate and operational structures, FinTech companies can also offer products and services that are up to ten times less expensive than traditional banks.
Most banks require you to be physically present in order to open an account or apply for financial services. Some banks may lack the technology required to verify your identity digitally. Customers find traditional banking less convenient, resulting in a negative experience.
FinTech apps are fast and simple to use. Customers do not need to be present to transact or use financial services because they operate virtually. As a result, FinTech apps are becoming a viable option. Users can register using their computers or, in most cases, a mobile application. FinTechs offer users 24-hour access, remote account opening, quick consultations, and better overall communication. They have risen as a result of their focus on the user experience, an area where banks have lagged.
Traditional banks rely on legacy infrastructure that is often decades old to support their operations and backend across all of their primary tasks. This includes, among other things, opening an account, setting it up, and processing transactions, deposits, and loans. Banks’ ability to communicate with other systems is limited by legacy systems, and they are unable to update their infrastructure in order to provide new services, products, or experiences to customers more quickly. As a result, banks are falling behind.
Creating partnerships by leveraging strengths
Faced with an increasingly competitive landscape, banks are collaborating with fintech to provide specialized services that exist outside of their core offerings. Fintechs benefit from banks’ scale and ability to collaborate to create new products and services.
How can fintech approach banks?
You may find fintech employees wearing suits and bankers in trainers, but some differences still remain and can make partnerships challenging.
To begin, fintech, particularly those that are not highly regulated, must be pragmatic. Banks operate in a highly regulated environment with numerous safeguards. Fintechs that work with them will inevitably face painful processes, various risk assessments, and numerous questions.
How can banks improve the process for fintech?
Banks should look for partnerships with fintechs if they want to deliver something unique and innovative. However, this requires collaboration, exploring options, and being open to sharing pain points, successes, and goals. It should not involve rigid procurement processes that deprive banks of the flexibility and ability of fintechs to create the best solutions for customer problems. Some problems may not have ready-made, cut-and-paste solutions, but new solutions can be formed in a partnership if both parties are clear about their problems and needs.
Sharing a common goal and purpose
Perhaps the most crucial aspect is that banks and fintech have a common goal. Banks cannot simply partner with a fintech because it is the “trendy” thing to do. Fintechs cannot simply partner with banks in order to scale quickly. The collaboration must make sense for customers and improve their overall experience.
Can a bank and a fintech collaboration create something new and unexpected? Can they provide a service in an original way? And can they do it in a way that is easy and convenient for customers? If the answer is yes, and the work has a clear purpose, it can work.
Accepting and valuing differences
A common goal can cut through even the most troubling cultural differences, bringing people’s focus and attention together. Small misunderstandings and niggles can grow, irritate, and eventually make both sides wonder why they’re going through this together.
Banks and fintech will never be the same and that’s perfectly alright. Differences are important because they are what make partnerships strong, with both sides bringing unique perspectives and strengths.
Written by: Rim Ghandour