The year 2010 saw a wave of digital adoption by many industries globally. That was also the year one witnessed the rise of fintech companies. Within a decade of the digital transformation, banks saw potential threat by the fintech (Financial Technology) companies and decided to up their game by investing in digitization. However, despite the constant upgrade and digitized innovation, banks could not slow down the rapid expansion of fintech companies. On the other hand, the fintech companies knew that they lacked the power to compete with large and established financial institutions. As a result, both banks and fintechs concluded that collaboration proved to be more beneficial than competing with the other.
Digital Adoption: The Rise of Fintechs
The fintechs exploded in growth in a short span of time. The reason for the surge of fintech companies was a wave of new generation of customers who felt traditional banking was outdated and time consuming. Although many banks took the digitized approach, there were still some who lacked proper user experience and digital solutions targeted at the younger customers. Fortunately, there were positive changes in the field of improving customer experience with the help of fintechs and banks saw an added value by collaborating with them. The banks and fintechs started their successful partnership where the fintechs powered the banks digitally, and the banks gave them an established platform toi reckon with, making it a win-win situation for both the parties.
A data published by Finextra, in 2019 revealed that 81% of banks were working with fintech companies to execute their digital transformations.
The Fintech challenges
While many banks saw the success in collaborating with fintech companies, there are few who were not convinced as the fintechs had zero reputation and recognition to begin with. One of the biggest challenges that fintech startups struggled with, was not being able to convince banks to pair up and get the customers to trust them with their money, so that they could come up with cutting edge digital solutions and scalable offerings. Another challenge that fintechs faced was that they had to ensure that all regulations were complied with and that they must reduce the risk of fraud. Finally, the most important challenge was the fact that they had to ensure that all the private consumer data had to be secured and stored properly.
The Fintech value
As time went by, fintechs earned trust amongst the banks and today most of the banks seek a fintech partner to power them up digitally. While, banks started using the technological know-how of the fintech partners to digitize their interface and improve customer user experience; the fintechs were able to increase their brand recognition from the status of the banks. Today banks are able to reduce overhead costs after having introduced digitized solutions and services powered by their fintech partners. By collaborating with each other they can increase their market share and tap into new customer segments. While banks use a digitized approach to tap into the younger customer base, it is quite the reverse as the fintechs want the endorsement of the more established and older customers. The bank-fintech partnership enable both the parties to scale up, build efficiency and generate more profit.