FinTech Transformation: How Banks Are Using New Technologies

FinTech Transformation: How Banks Are Using New Technologies
FinTech Transformation: How Banks Are Using New Technologies

According to different estimations, there are 12,000 FinTech startups now. In 2018 only, new firms gathered $32.6 billion in investments. Surely, these numbers can hardly compete with the statistics of large multinational banking systems but they clearly show that new players aren’t afraid to enter the market.

With more and more financial innovations in technologies, we move towards the era of transformation. Being driven by the customers’ demand, finance sector relies on clients heavily. There will be no choice for old-fashioned banks but to evolve. How is it possible? Which directions and apps chiefs will choose? Let’s try to answer together.

Understanding FinTech and Banks

FinTech is an acronym for financial technology – a sector that presents new ideas and solutions in the area of financial services. FinTech companies utilize innovations such as blockchain, AI, Big Data, etc. They also rely more on mobile and omnichannel approaches, automation, robotics, and remote interactions. FinTech startups try to make the user experience as smooth as possible by delivering real-time operations and personalization.

Compared with startups, banks tend to be less customer-oriented. The study conducted by PwC reveals that only 53% of respondents from traditional finance organizations believe that they’re client-centric. Simultaneously, more than 80% of FinTech groups think that they deliver services with the main focus on customers. It means that the technologies used by startups also can help banks to become more focused on the audience.

Challenges of Digital Transformation

While innovative stuff may look pretty tempting, it’s not an easy task to integrate it into the existing solutions. The most crucial challenges fall into two large categories: HR and tech.

The first one includes recruiting problems that require finding and training specialists in new areas such as blockchain, mobile development, etc. HR challenges also feature substitutive nature according to which banks will have to dismiss existing employees because of higher automation level.

The tech side comes with new security and performance requirements. FinTech approaches provide for new solutions that aren’t always fully tested and optimized. Thus, banks have to ensure that everything works properly and delivers higher profits in the long run. Generally, institutions also should maintain elaborate risk management strategies.

To avoid these problems, banks can interact with FinTech startups instead of competing with them. Often, they tend to cooperate in several ways:

  • Aggregation. A bank can combine services from several groups to provide a wide choice for clients. Thus, a bank will act as an aggregator.
  • Investment. In this case, a bank delivers funds to the chosen startup(s) independently or through an acceleration program to get benefits later.
  • Unique cooperation. Unlike the aggregation model, this one provides for close partnership between one bank and one FinTech firm.

Surely, banks still can implement new tech without cooperation at all. Thus, they should find options to utilize innovations. Let’s reveal how they do it.

Ways to Apply New Tech in Finance Institutions

Actually, there’s a number of options for banks in terms of innovations. From traditional automation and mobile-only branchless banking to super apps that combine all the possible services, the industry opens numerous ways. Below, we list the most prospective ones.

1. Cryptocurrencies

Let’s begin with the most controversial idea. Crypto enthusiasts know that the first currency of this type – Bitcoin – was invented as an alternative to centralized banks and payment systems. Cryptocurrencies are based on the ideas of anonymity, accessibility, and transparency. They aren’t controlled by governments or certain parties. Instead, these systems are based on the entire community of users. So, how they can be useful for banks?

Today, several traditional finance companies cooperate with crypto projects closely. The most famous one is Ripple – a worldwide payment network that works with Santander, Standard Chartered, SEB, and other financial groups. Some banks leverage blockchain ideas to make their systems more transparent while others accept crypto clients! Potentially, we may see efficient hybrids working with both fiat and crypto.

2. General Digitalization

This point combines the most familiar approaches to FinTech integration. They are widely adopted by traditional banks and other companies today. Despite the features aren’t extremely mind-blowing, they will be the most important directions of transformation for the next few years.

The digitalization features include but aren’t limited to:

  • Automation. One of the best ways to reduce redundant manual work, optimize business processes, and let the employees focus on more creative things. Automated notifications, reports, and payments make the bank’s life much easier. FinTech companies use automation as one of the core benefits, of course.
  • Mobile apps. The most valuable trend right now. Modern tech-savvy customers want to access financial services at any time using the simplest systems, i.e. smartphones. For this, banks develop mobile versions. Startups like Revolut and N26 base their services on mobile-only approach making it easier for clients to interact with banks.
  • Robotics. Being similar to automation, this approach stands for utilizing smarter AI systems. While automated reporting is handled by pretty simple software, startups actively work on better stuff. The example is the development of smart assistants available via mobile apps and chats.

3. New and More Diverse Channels

With the emergence of mobile solutions, it’s logical to start working on new delivery channels. Now, clients can forget about accessing banks personally. Instead, they are free to choose the best digital way of interaction, e.g. built-in mobile chats, messengers, social media, voice calls, and more. This level of freedom boosts customer experience. It stands for a high level of personalization that is pretty important for users.

All the channels can be united via an omnichannel solution. Thus, each client will receive the most relevant messages and offers regardless of the platform he/she uses to access the bank. Moreover, with new channels introduced, companies will require more elaborate managerial systems such as ERP in banking sector. With this software, it’ll be easier to collect data, analyze customer insights, and manage the whole company.

4. Security Measures of New Age

As new technologies emerge, frauds also invent new ways to get the users’ data and money. It may be even easier because of a somewhat lower level of protection and a higher number of bugs/issues. To respond to this threat, banks have to utilize FinTech ideas in the field of digital security. Here are a few examples:

  • Face identification.
  • Fingerprint biometrics.
  • Voice authentication.
  • All of the above.

5. Super Apps

Finally, we expect to see a brand new type of banking apps. Remember how banks can interact with startups? The point about aggregators. It’s possible due to new regulative initiatives like PSD2 and OBS which allow third-party firms to access the clients’ databases and use the banks’ APIs to provide their services.

On this basis, super apps may flourish. They combine different functions using only one platform so users don’t have to look for other options to get everything they need. They can provide credit scoring, budgeting, payment automation, etc. Of course, traditional banks can offer their existing infrastructure as a base for these applications.

Conclusions

At the end of the day, FinTech startups and traditional banks can benefit from cooperation greatly. New market players deliver innovative technologies and fresh vision while existing banks share their audience, infrastructure, and experience. The problem is that both parties face various challenges. For instance, startups are afraid of old-fashioned corporate culture and weak management while banks discuss the new firms’ low IT security and regulation.

Still, it’s possible to combine FinTech inventions with bank basements. Today, a lot of financial firms implement new technologies to meet new users’ demands. And it’s cool, undoubtedly.

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