Fintech startups are changing the face of the financial industry. People are adopting technology at an increasing pace, which is creating new opportunities for startups to come and disrupt the traditional system. Banks have had to take notice. So, how are major banks trying to keep up with fintech startups?
Increasing technology budgets
Traditional banks have realised that in order to survive in the cutthroat market, they need to start providing customers with more modern opportunities. The focus is driven largely by the challenge of the fintech startups. According to a report by McKinsey & Co., banks might well lose 60% of retail profits to technology startups. In addition, the report suggested 40% of revenue could disappear to tech startups by 2025.
So, where has the increased budgets and attention flown? DealMarket has reported earlier on banks’ willingness to open technology and innovation hubs. Barclays is opening up one in London and in the US, Capital One is creating Capital One Cafes, which offer a more modern and relaxed branch experience to customer.
Change in culture needed
However, many fintech startups don’t believe the current model is going to turn the tide. David Vélez, CEO of Brazilian credit card company Nubank, told the International Business Times, “They [traditional banks] need to rethink their culture”. According to Vélez, traditional banks are still too focused on adding more technology and modern-feel to their existing product. But that there lies the problem – banks are still offering the same product underneath a new layer of technology.
Furthermore, banks need to gain customer confidence back. This can be harder to achieve and it will most likely require more than just a flashy new branch. A Gallup poll in the US showed how customer confidence in US banks has dropped from 49% in 2006 to 27% in 2016. At the same time, the younger generation is willing to put their faith in fintech startups.
Interestingly, the lure of fintech startups and new blockchain technology is also something business customers are battling with. For banks, the battle is not just for private individuals, but also for the hearts and minds of the business customer.
Opportunity for fintech startups
For fintech startups, the current situation can prove to be advantageous. Fintech fundraising has been strong, even in the UK where Brexit caused an initial drop in investment. The constant challenges fintech startups throw at each other in terms of innovation act as a catalyst for further change – something that benefits the consumer.
Of course, banks have also realised the power of innovative, fintech thinking. As mentioned, fintech partnerships between banks and startups are increasing. However, the expert discussion tends to turn to culture in these instances as well. In the International Business Times article, Tala CEO, Shivani Siroya, said banks are still finding it hard to understand two major things about modern customer. First, that mobile is the only way to go in the future and that customers want personalised relationships that last. If they start focusing on this, the partnerships with fintech startups can become more fruitful.