With shrinking net interest margins and increasing regulatory and compliance costs, banks must find new ways to increase their top and bottom lines. This means that they must either find new efficiencies to cut costs, or new revenue streams and products to compete in what has become the “new normal.”
Here is the good news: Technological advancements provide possible solutions for both sides of that equation. But here is the bad news: Technology is also a huge factor in what could be an even bigger problem in the overall scheme of things. In addition to the many operating challenges that banks face today, banks are also entering an entirely new era-a digital one-where they face competition like never before, including the emerging financial technology-or fintech-sector, which has the potential to be very disruptive to the traditional banking system.
The term “fintech” can be defined many ways, but we consider it to include any technology company that is providing a service related to financial services, whether it be in collaboration with traditional banks or not. By combining transparency and convenience, and improving the customer experience, these new entrants have become a real threat to incumbents in a short period of time. With less and less talent entering the banking workforce, and with the fintech sector being flooded with millennials ripe with ambition, it is easy to see that banks must act-and soon.
For a fintech company to be successful, it must have two things: funding and customers. While tech experts and programmers are great at seeing things from the consumer side of banking, it is rare that they understand the back end compliance and regulatory requirements that go along with the service.
For a bank, technology provides a way to move faster, cheaper and sooner. Given the banking industry’s archaic infrastructure and reputation for too often delivering a painful customer experience, consumers would probably welcome some improvement in their bank’s service quality and product offerings by utilizing new technology solutions. Today’s consumers want what they want now, with a level of convenience that many banks struggle to provide. The challenge is to provide those things in a safe and cost-effective way.
Banks and fintech companies can certainly choose to compete, but as we are already seeing, collaboration is the key to both of their futures. For fintech companies, banks offer a great advantage right off the bat-they have customers. Banks are an automatic distribution channel, allowing technology and products to reach thousands of customers without the high acquisition costs fintech companies face as standalone competition. In addition, banks can provide the regulatory compliance expertise that fintech companies lack. For banks, technology can automate manual processes, improve security, increase speed and enhance the customer experience, in addition to creating new revenue streams.
We believe that technology is so important to the banking industry’s future that we have launched FinXTech (pronounced fin-ex-tech)u2013a new division of Bank Director-which is designed to connect the leaders of financial institutions with “need to know” fintech news, and perhaps even more importantly, the fintech executives who have an interest in collaborating rather than competing.
FinXTech.com launched in late May as a content resource for you and your executive team, and rather than focusing on funding and exit news, this site provides real-life examples of collaboration, reviews on fintech companies, a resource directory for FinXTech-approved vendors and information on upcoming events. We are looking forward to including FinXTech-focused sessions at more of our upcoming events, and are already planning for next year’s FinTech Day and Best of FinXTech Awards. If you’d like to get involved, please reach out.
For the last 26 years, beginning with Bank Director magazine, we have prided ourselves on being an indispensable resource to bank directors, CEOs and other members of the senior management team. We are in it for the long haul and fully invested in the future of banking, wherever it leads.
By: John R. Engen
Marketplace lenders have become a vibrant force in consumer finance, but long-term success depends on solving their funding challenges.
By: Emily McCormick, director of research for Bank Director
Fintech firms and even some traditional banks are looking at new data sources to underwrite loans, but the jury is still out on whether this new approach will be effective.
By: John Maxfield
Do the benefits of using APIs to share customer data with third-party developers outweigh the challenges, including the loss of control over the customer relationship?