In the light of recent tectonic movements in the world of finance, several concerns appeared. Financial institutions realized that Fintech companies represent more than just tech solutions providers – they entered the market competition.
So, what kind of path is the safest, and what kind of changes should we expect in the near future when it comes to the financial institution – fintech relation?
Regardless of your attitude towards Fintech, we can all see the marks it is leaving all over the industry. For this reason alone, it is paramount for financial industries to learn how to adapt to this newly-applied pressure, and ultimately reap the rewards from the solutions Fintech has to offer. After all, changes are inevitable, and Fintech has only started to dictate the direction of technological growth and digital transformation in general.
As the new kids on the block, IT companies that rooted in the financial sector are there to help the financial institutions, not harm them. Any kind of banking or loan business is bound to take the digital approach and change their client handling from inside out, in more than one way:
These changes seem like a lot, and they are, but often times, financial institutions cannot, and must not, approach them on their own. But, the question still remains: Why should financial institutions (FI) adhere to game changing?
Do not think for a second that Fintech is an endless source of power that we all need to accept no matter what. The truth is that Financial Institutions and Fintech companies are essentially two sides of the same coin, and the defensive actions both take due to the competition are only natural. But, what do these seemingly different systems have to obtain from one another?
Firstly, by implementing solutions from B2B Fintech companies, an FI can achieve performance boosts through operation cost reduction.
The main issue with traditional companies face are the clammed up legacy systems. A lot of banking companies reach for the quick fix and put up a nice and modern facade for their clients, while keeping the core data systems old-school (or in a practical sense: slow). Making a symbiotic connection with an adequate Fintech will eliminate the need for bad quick fixes.
Additionally, the biggest weakness of legacy systems is the lack of speed and agility. Making your banking business more agile should be a priority which Fintech tends to tackle, and ultimately solve! Agile methodology is getting more popular by the day due to its efficiency. IT solutions that Fintech companies offer are the best way to patch that hole which traditional systems tend to have.
Lastly, in order to achieve the highest cooperation level possible, it is important to acknowledge the fact that this relationship works both ways. But, if we look at things from the vice-versa perspective, we can clearly see that Fintech companies of today tend to lack in industrial experience. Having fresh and shiny solutions is a strong hand to play, yes, but nothing beats decades of experience and presence in the field which FIs bring to the table.
However, besides the intrinsic, we definitely shouldn’t forget the market value, or rather the combination of both.
Return on Investment, or ROI, is a well-known concept. It helps us with assessing whether an investment is worth our time and resources, or we need to go back a step or two to reevaluate the situation. According to a Deloitte (2018) report, financial institutions that invest in Fintech tend to observe ROI as Return on Innovation, rather than just looking at it through the prism of pure profit.
It is no secret that these financial IT companies represent the main driver of technological changes from within the industry, and that alone should be a good enough reason to think about investing in one.
As finews.com reported, in the first two quarters of 2018, the global Fintech scene amassed a total of $58 billion in financing alone. So, the worth is there, but how did it explode like this?
It all came from a well-established connection between the fintech company and the Financial Institution. It companies pushed the boundaries of digital service, and FIs invested in them, thus reaping all the benefits of innovation. This kind of harmony is essential for both sides to progress.
As everything in the financial sector goes, there is no simple answer to this question. But, we can clearly see the beneficiary relationship between the Fintech and FIs. To put things plainly: Fintech offers agility and the option to utilize cutting-edge technology, while the banks and other financial institutions provide industrial experience and a playground for new technologies.
Finally, we can safely say that neither can exist on their own at the moment. Both sides need to realize that digital transformation speed and safety depend on the strength of the alliance they are willing to make.
What does the future hold? Well, that remains to be seen. Very soon.
We are ready to invest in the first steps of your digital transformation!
Our key consultants can help you to build a successful digital transformation roadmap.