How can Traditional Banks avoid Fintech Threats?

Although banks have been following the traditional method of making financial transactions and saving money, fintech brought about a wave of insecurity among the bankers as conventional banking patterns started diminishing. Besides, these organizations also focus on providing customers with functionalities that were previously unavailable.

The emerging fintech sector is often portrayed in mainstream media as disruptive, if not dangerous. There is a swaggering that makes that sound like a good description of this sector. Fintech companies are not disrupting traditional banks.

These are providing products and services that aren’t offered by the big banks.

These firms introduced dynamic payment systems that empower their users to complete their financial transactions without the involvement of a middle person and curtailing transaction charges implied on them by traditional banks. The speed of transactions has also increased with these fintech firms. Technologies like blockchain in the finance sector have helped various firms across the world to achieve customer satisfaction and loyalty. This technology has helped fintech in improving transparency of transactions in their payment systems that led to improving user interaction and experience.

How Banks can Avoid Fintech Threat

Fintech startups have not looked at the widespread disruption of all financial services so far. A startup data analysis by McKinsey shows that 62% of startups are tackling the retail banking segment, with only 11% focused on massive corporate banking offerings. Payment is the most popular area to usurp, and lending is the most lucrative area of banking by revenue being targeted.

The response by banks to fintech disruption is crucial due to the current stage of the nascent industry’s development. Fintech startups are widely focused on the concept of unbundling banks, delivering one type of product/service and concentrating on doing it very well.

Innovation has been massively driven on the front-end within these specialized offerings, mainly through improving customer-facing facets of financial services. Some examples of how banks can avoid such threats:

Better Service

A traditional bank broadly ties a customer in by offering them a range of services that make them sticky through increased switching costs. Without this luxury, specialized fintech companies follow a mantra of earning trust through better customer service and referral-based client acquisition. 90% of fintech companies cite improved customer experience as a key to their competitive advantage.

Better Branding

With employees from non-traditional banking backgrounds adding an unbiased perspective, the fintech sector is refreshing the branding of the legacy services that are trying to upend. Modern marketing tools such as gamification are making mundane tasks exciting and more palatable to consumers.

Cheaper Prices

Having a virtual operation, more flexibility through not being regulated as a deposit-gathering institution, and cash from venture capital allows fintech startups to attract customers with competitive pricing.

Partnership pattern is trending among some of the top traditional banks. They focus on partnering with fintech companies rather than buying one for themselves. With these organizations collaborating with their banks, bringing banking services and products to the market becomes seamless.

Fintech threat to banks is real, and banking companies have to start searching for viable options for working in the market alongside fintech. It’s the time that banks think of what fintech companies they can target to collaborate with, purchase, or develop a similar portal for them that can bring their companies to life and create a digital value too.