Fintechs and the financial market future
There are no news that Fintech companies are a real threat to the future of large financial corporations. But how Fintech (Financial Technology) have driven the future of the financial sector and how traditional and established corporations have responded to these threats?
Fintechs are already running the market for a long time. Then, what is special now? To answer this question we need to think a bit in the type of products and services being offered by these companies, which target audience and why it is taking off the sleep of financial institutions.
More than simply develop new systems or upgrade legacy systems for financial institutions, Fintechs began to develop and bring to market their own integrated applications and solutions to compete directly with them. They are mobile payment applications, resource transfer, credit card services and, in some cases, even the opening and maintenance of fully digital checking or saving accounts, which includes services such as P2P loans, mortgages, financing, insurance, etc.). In this model, the client no longer needs any physical interaction with the institutions. And by offering their services and a complete customer service environment through the digital world without physical branches, Fintechs can provide their products and services at a fraction of the cost of traditional banking products, such as Nubank with their no annual fee credit card. In addition, banks have not shown the same ability to quickly adapt to changes in the digital consumer behaviour, something Fintechs can easily do — quickly and very well.
Something that is also forcing banks to rethink their business models are the increasing regulatory demands. In the face of tighter budgets and anxious to meet all major standards and market regulations, these institutions are rather looking for ways to improve efficiency and reduce costs. Nevertheless, its heavy processes — and even tied — decision-making process and the consequent implementation of new ideas are turned into an arduous and slow task, bringing another challenge for banks. Thus, the agility of Fintechs with its lean mind set and culture of innovation focus can be highlighted, and a strong factor that has counted in favour of its rapid growth.
All that without mentioning the called cryptocurrency, or digital money, which has led to large institutions like Goldman Sachs and JP Morgan initiate global projects to increase the efficiency of trading and settlement of assets.
Inside of Brazilian market, the number of users who owns smartphones surpassed the milestone of 76 million in the third quarter of 2015. Most people prefer the speed and convenience of applications available for these devices. Included in this growing number, we have the so-called Generation Z. People who were born and grew up with the World Wide Web (1990) and the explosion and popularization of technological devices by the end of 2010. This demanding and highly digital mass of consumers no longer find themselves satisfied with the traditional model offered by financial institutions, and therefore are more willing to try new products and banking services, from companies that does not yet have a solid brand recognition, as traditional banks have. This generation of digital natives will make the difference and define which companies will still exist in a future that has already begun.
In 2015, some UK Fintechs earned banking licenses under the agreement of the government and market regulators and were allowed to expand its portfolio of mobile products and services, increasing competitiveness in the sector. Given the speed of technological change and financial services, any financial institution, even if well established in the market and in front of their customers, cannot afford to ignore the threats or opportunities that Fintechs represent.
According to a recent report made by PwC, ( Blurred Lines: How FinTech is Shaping Financial Services), by 2020, over 20% of the financial services business may be at risk because of emerging FinTechs, so now more than ever, financial institutions need to change their mind set to meet the needs of the digital consumer, integrating the digitization of its processes to its corporate DNA. And according to this same study, the ways to achieve this are: put a FinTech methodology as the centre of its strategy, adopt a mobile-first approach, collaborating with FINTECH companies and understand the background regulatory challenges.
Modern consumers are increasingly comparing the digital banking experience from your bank with companies like Apple, Amazon and Google — who were not famous for their banking services but as well as Fintechs have also taken the sleep of many traditional organizations of financial services. Financial institutions that do not define and start a real digital strategy for the upcoming years will face serious problems to remain profitable in this market.
This article was originally published in Brazilian Portuguese language at Computerworld.com.