Sparked by the 2008 global financial crisis, the emergence of fintech technology is beginning to be felt by traditional banks. According to a study by the consulting firm Accenture, a third of new revenue is now going to challenger banks, non-bank payments institutions, and big tech companies. The study found that from 2005 to 2017, the ranks of banking and payments institutions decreased by almost 20 percent. Conversely, fintech firms and banking startups have made up nearly 17% of new companies in the financial space since 2005. While the foothold gained by the fintech sector varies from country to country—depending on regulations and other factors—it’s obvious that legacy financial institutions can’t rest on their laurels. Here are two ways they are addressing the continuing onslaught of digital competitors.
A Commitment To Digital
Unlike those in the fintech sector that are agile, traditional financial institutions are conservative and notorious for adapting slowly to change. In a fast-changing environment, however, being stodgy and risk-aversive is detrimental to much needed adaptation and growth. Moving forward, legacy banks will need to deploy digital versions of existing services. The most expedient way to achieve this is to partner with digital players that can expand their market share. Within the last year, Bank of America Merrill Lynch, KeyCorp, Wells Fargo, and JPMorgan Chase have all made investments in fintech technology to better serve their commercial clients. Others, like U.S. Bank, have decided to build in-house solutions that offer the ease and speed of digital startups. Their digital cross-channel platform provides small business loans up to $250,000.
Accessing The Data Advantage
Nearly half of the combined total banking assets in the U.S. belongs to JP Morgan, Bank of America, Wells Fargo, and Citibank. These large financial institutions have advantages. A significant one is the massive amounts of data they’ve collected over the years. By identifying and capitalizing on consumer behavior, these companies can generate revenue by offering value-added services to their customers. They can also use their treasure trove of information to go beyond banking to provide resources and tools relating to a person’s interests or business needs.
It’s easy for traditional financial institutions to underestimate the impact of the fintech sector. Among the new financial players in the U.S., their banking and payments revenues are still only 3.5 percent of total revenue. The future, however, always belongs to the young. Millennials and those from Generation Z lived through the financial crisis of 2008. The experience left them leery of traditional financial institutions. Therefore, new financial technology companies that are able to build likeable brands, foster trust; and provide fast, easy, and attractive services will continue to appeal to younger generations.
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