Over the past two decades, firms across many industries have gone through digital transformation. This level of digitalisation has paved the way for small to medium enterprises (SMEs) to be able to utilise innovative solutions to gain a competitive edge in a cutthroat business world.
Now, technology-driven innovations have lowered the barriers to entry in the finance sector, one that has been long regarded as a traditional industry. These disruptive solutions have the capability to reshape the face of financing in a once-conservative sector, be it for traditional banks or fintech companies.
The love-hate relationship with fintech and traditional banks
With the entry of fintech firms into the market, retail banks are faced with a new and direct competition. Both function as a financing option for businesses. However, there is also a seemingly ideal allyship in this scenario. Retail banks have the capital and know-how to develop in-house operations to power their digitised processes.
Also, they have the resources and foundation that fintech companies can benefit from in a partnership between the two. Typically, digital banks can choose to outsource aspects of their business to fintechs, resulting in a dual-situation of competition and partnership.
As practical as it seems, it may not always be that easy. Traditional banks have access to multiple partners, potentially harbouring fierce competition among fintech companies. As banks start to embrace technology, these established ‘big fish’ can leverage cutting-edge solutions from fintechs of their choosing without the same level of reciprocity.
Discovering new models to combine their strengths
It goes without saying that in an era of digitisation, it is impractical to work solely on the traditional business model. Banks need help. Fintech companies have a narrower focus, which translates into expertise, on certain aspects that can power the processes of traditional-style banking.
A prime example is through open banking platforms. The integration of third-party services into digital banking platforms has given financial services a whole facelift, from improved customer experience to round-the-clock accessibility, among others.
Collaboration between fintechs and digital banks allows for a more flexible and holistic experience for the end-consumer. The use of technology can also accelerate financial decisions. To put it into perspective, this coexistence can be seen in origination and lending platforms, omnichannel merchant platforms, and cloud services with cybersecurity and IT infrastructure requirements.
Digital banks and fintech can collaborate to benefit each other
One obstacle that comes with this high-tech upgrade is an almost directly proportionate increase in regulation. The need for digitalisation is almost a necessity in current times, but in doing so can bring in its own host of challenges. Since traditional banks have built a rapport for secure and safe banking, the market may be wary of this shift to an all-online model. To gather the same amount of trust that traditional banks have fostered over its history may be a gruelling process for new market players.
As the Neobanking phenomenon continues to take over the world, these virtual-only banks move users from physical branches online, and in turn, raise the prominence of the issues.
To combat issues such as security risks and fraud in the acceleration of digital banking, governments have been pushed to develop new regulations. These legislation frameworks are put out to reassure and protect customers.
At the same time, smaller companies may be vulnerable to new regulations. For instance, digital banking licenses can put a dent in the financial plan for startups. Traditional banks looking to tap into digital banking will need to provide proof of expertise in several industries for an operating license.
These requirements also include a need for “further financial inclusion, technological innovation, customer analytics, and a solid understanding of banking risk management and compliance.”
Fintechs, however, are currently not grappled by the same rules and regulations that digital banks may face as they start to pivot. This gives them an edge since their growth is not constrained by the same decree.
Now is the time to break tradition and shape to future of banking
Fintech startup Jenfi, provides financing options in the same market share as many online banking providers. This, however, does not eradicate the possibility of a complementary partnership with digital banking services. The said partnership between Jenfi and digital banks could set a precedent for improved digital banking services – underwriting in specific market segments such as eCommerce and analysis of ROI of productive spending and investments.
Around the world, internet penetration rates is at an all-time high. In conjunction with digital transformation in organisations, this rise in online consumption from tech-savvy individuals drives the demand and need for innovative and digitised financial solutions. When it comes to the latest innovations in fintech, the generally positive media buzz and the fresh image seem to appeal to consumers.
Increasingly, consumers are realising that financial management and embracing technology is the way forward – a public sentiment that has evolved over the years. Technology-driven solutions, including digital banking apps and eWallets, are dominating the market right now, as a result of convenience.
In the last decade, the interaction between financial institutions and the market has evolved drastically as banking goes through transformations. Today, people demand control. Enter the partnership model for fintech and digital banking; they work together hand-in-hand to leverage on new technologies, in a win-win solution. With continuous disruptions and higher adoption, the alliance between banks and fintech will only grow to shape the future of banking in the years to come.
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