Rapid, frictionless, and on-demand services are becoming the norm in financial services. Do banks need to worry about the disruption that fintech players bring?
Tech players have disrupted almost every industry in the last two decades. Despite the rise of neobanks – estimated at more than 200+ globally – banks have managed to maintain their leadership position mostly due to high regulation and customers’ general satisfaction with the products and services they receive.
Yet, there is an area where banks feel great competition from fintechs, as one recent survey by FintechOS and EFMA found out: payments. And this is because rapid, frictionless, and on-demand payments are becoming the norm in financial services.
Will this become a trend affecting other sectors of the industry? Do banks need to worry?
“Keen to look at the bright side”
We explored this topic by interviewing SME bankers and experts in our community. The general feeling is that there are many factors that can reduce the speed with which a bank can launch new products into the market, such as legacy IT systems, different regulatory regimes (which are already much stricter for banks) and internal bureaucracy.
The bankers we talked to were keen to highlight the bright side of the challenges they encounter. Raul Rîșniță from Banca Transilvania uses one message that says it all: “The digital era is all about collaboration.”
Martin Hyde, Head of HSBC Kinetic suggests another term should be kept in mind: “partnerships”. He thinks that “the space is big enough for fintechs and big banks to coexist.”
Quotes on competitors and partners in the digital era
#1 “We have partnerships and they have supported us to become more agile, to deliver faster and [they] completed areas where we lacked internal resources. Partners challenge us, share with us, are an important open gate to other cultures and other experiences” – Raluca Nicolescu CFA SME Director at Raiffeisen Bank
#2 “Fintechs have done a great job in terms of acquiring retail market but have yet failed to disrupt a complicated market like the SME one. I am seeing collaboration not competition and I am seeing the Open Banking concept as a very successful one in the next few years” – Raul Rîșniță Head of Companies Digitization Department at Banca Transilvania.
#3 “Sometimes we partner with major international IT companies and specialized fintechs. (…) ABN AMRO has set up an innovation center and uses its Digital Impact Fund to invest in companies developing technologies that are relevant to the bank.” – Patrick Pfaff Director Commercial Banking Clients at ABN AMRO
#4 “In order to fully compete with a bank, you either need to become a bank or you need to partner with one as banking is a highly regulated domain”- Ionuț Encescu, Head of Products & Digital Innovation Hub at FirstBank
No silver bullet
The race among banks to provide faster, more flexible, more personalized products and services will gather pace in the near future. While incumbent banks know that their greatest competition has to do with the digital capabilities space, most incumbent banks do not have the potential to launch new products quickly and make them more personalized to the customer.
When it comes to lending, fintech lenders – agile, digital, innovative, and unconstrained by legacy systems – have the advantage over established banks.
CTOs and CIOs in traditional banks are aware that there is no silver bullet that will solve the challenge of digital modernization to keep up with new entrants. The big bang overhaul of banking systems has been tried often enough for banks to understand that it is too risky, too costly, and not worth the trouble.
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Read more whitepapers on the same topic:
Digital-First SME Banking — Efma
10 Key Findings from the Efma Survey on SME Banking
SME Lending – How data and tech can bring a surge for banks
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Related articles:
Digital-first SME Banking: Key Learnings
The SME Financing Challenge: Why Digitization Matters
What’s Gone Wrong with Traditional SME Lending – And How to Fix It
SME Banking: Weathering the Storm
What’s Gone Wrong with Traditional SME Banking
Underserved SMEs: 4 Steps for Banks to Tap the Market
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MAIN PHOTO Credit: Unsplash
