The current state of affairs in the fintech industry
The rising number of online users and the aftermath of the early 21st century economic crises have led to the digitization of many financial products.
Fintech – a combination of financial services and technology – has been rapidly evolving in the last decade. Only in 2019, the global fintech market reached a value of almost $111.24B, with a predicted annual growth rate of approximately 10% by 2022.
The financial technology industry has rapidly matured in recent years. Once mostly catering to early tech adopters, fintechs are increasingly offering professional-grade solutions to mainstream consumers and businesses. Financial institutions are also increasingly engaging with fintech startups – either by investing in them or forging strategic partnerships.
According to McKinsey, almost 80% of incumbent financial organizations have entered the fintech space – and this number will most likely only grow in the future.
The future of fintech lies in technological disruption
The increasing popularity of digital payments, investments in blockchain technology, the rapid growth of e-commerce, and implications of COVID-19 are expected to drive the fintech market further.
Technology is indeed a significant disrupter when it comes to transforming how the financial services sector operates. By enabling today what was impossible yesterday, digital solutions allow financial companies to create innovations that drive their growth.
Intelligent automation, big data, cryptocurrencies, the cloud, artificial intelligence and machine learning are among the top technologies that help organizations to push the envelope.
What is digital transformation?
In a nutshell, digital transformation is a process of integrating new technologies into all areas of business.
By doing so, companies can fundamentally change the way they operate by modifying their existing offering or creating new products, processes, customer experiences, and organizational culture.
Digital transformation is not just about enhancing traditional banking practices. It should rather be seen as reconfiguring these processes for the digital age to meet changing market expectations and seize new opportunities.
Successful examples of transformation prove that becoming digital-first is no longer an option but a must for financial companies which want to prosper in the new economy.
Digital transformation in fintech
The speed of change sweeping across the world of digital banking leaves no doubts about how deeply fintech is disrupting the financial industry.
An excellent example comes in the story of US Bancorp – a financial Leviathan boasting over $400B in assets. The institution teamed up with a fintech startup to create a mortgage app. Used in over 70% of applications, the new tool helped to simplify the process and reduce the approval timeline from 11 days to same-day decision.
Indeed, delivering enhanced customer experience and value for the user should be a guiding star for incumbent financial institutions seeking to innovate their offering and operations.
One of such areas could be using data to better understand their clients on a more individual level and provide them with fintech solutions that hit the spot.
Technologies enable creating more dynamic and personalized products users can tailor to their changing needs – just as Solarisbank did with great success.
Why not give your customers what they truly need – especially that digital technologies enable you to do so?
The benefits of digital transformation in financial technology
Incumbent financial companies are well aware of the new challenges. Forced to comply with strict regulations and organizational targets, they know that they can’t innovate at the pace set by startups.
Digital technologies help them introduce new business models, transforming the relationship with the customer and heading toward a more seamless, efficient interaction.
The existing legacy infrastructure is what limits traditional banks and insurers the most, hampering their digital transformation process. By investing in new tools, financial companies can embrace the flexibility they need to compete in the evolving digital market.
Agile and modular infrastructure is a must if incumbents want to keep up with the changing preferences of their customers.
By embracing the potential of financial technologies, they can add and remove services fast while offering the required levels of security and customer service. They can also predict future trends and subsequently release products that best respond to their customers’ expectations.
What challenges do the incumbents within the financial industry face?
Fintech-related loss of market share and margin pressure are becoming threats for the incumbents in the financial industry. As many as 75% of banking respondents in the PwC study fear that some part of their business is at risk due to fintech.
There are several reasons for this situation.
Firstly, clients are increasingly expecting offerings and overall relationships with banks to be seamless and address their particular needs. While startups are building fintech solutions to address this need, incumbents are still lagging.
Secondly, the increase in customer autonomy is becoming evident, especially considering how popular internet banking and apps have become.
Incumbents have been growing digital capabilities to match this trend, yet many still fail to integrate multiple digital channels into an omnichannel customer experience.
Fintechs, on the contrary, are much faster at collecting data to predict their clients’ needs, offer compelling value propositions, and generate new revenue streams.
