It’s laid the groundwork for a technology revolution in the financial services sector – one the big banks are no doubt keeping a close eye on. In fact, just under 90% of global financial services firms have admitted they’re concerned about losing revenue to innovative fintech disruptors.
After the 2008 financial crisis, major financial institutions were preoccupied with a slew of new regulations to focus on cutting-edge technologies. At the same time, astute investors were beginning to spot technological opportunities within financial markets — the sort of opportunities that had already radically disrupted retail, travel and other industries.
What types of fintech are there?
Mobile wallets, payment apps, crowdfunding and peer-to-peer lending (P2P) platforms — these are some of the innovative financial tools emerging technologies have brought to the fore. Developed through small, agile tech companies, these tools came online and reached adoption at a dizzying pace in comparison to traditional banking services.
Experts predict that $150 billion will be invested in fintech over the next five years. Establishing fintech brands, such as Transferwise, eToro, Adyen and many others, have already revolutionised financial services and broke ground for other fintechs to follow.
How fintech is shaping financial services
Such fintech tools and services have not only altered long-standing methods of payment and investing, but they have opened up huge new markets. Previously unbanked populations quickly adopted secure mobile wallets and payment apps, allowing them to safely store their money and make purchases without carrying around a large bag of cash. New investors of limited means finally had the ability to earn better interest on their savings. And P2P lending gave more people than ever access to loans and at reduced cost.
Though fintech has encroached on terrain almost exclusively controlled by big financial institutions, the reality is that banks won’t be disappearing anytime soon. However, there’s no doubt they will need to evolve in a world of quick and easy fintech solutions. In fact, 82% of global financial institutions said they will be increasing their fintech partnerships in the next three-to-five years to keep up.
“The big banks will struggle to keep up with the rapid pace of innovation that is being driven by fintech startups,” stated Morgan Sowden, CTO of Octopus Group. “This is not only because they are burdened with legacy technology but more importantly they are burdened with legacy processes and organisational structures.”
In an era where agile, cross-functional teams work quickly to offer highly customer-centric products and features, most banks still work with old corporate frameworks that slow down communication and decision making.
Morgan cautions, “Banks that don't quickly recognise this tectonic shift in the way they need to operate are very likely to be left behind. Many will go out of business.”
With its enormous technological efficiencies and focus on being easy-to-use, fintech is increasingly finding a foothold in people’s everyday lives. It’s a trend that will only continue to flourish. Banks will surely follow this same path of increased speed, efficiency and customer-centric service and design — if they can keep up.