The world Fintech report 2017 noted that while some FinTechs were quickly finding their niche with viable business models, traditional finance institutions were also likely to adjust by building their own capabilities. The report further noted that traditional financial institutions will likely coexist with FinTechs just as e-books did with books. FinTechs have advanced significantly especially in customer relationships with 50.2% of global consumers of financial services saying that they have interacted with them. Since FinTech is here to stay, it will be useful to understand its distinguishing features with the financial sector.
Fintech is largely associated with:
- Mobile functionality
- Big data
- Accessibility
- Simplicity
- Cloud computing
- Convenience
- Personalization
- Agility
While traditional banks are currently embracing some of these features, there remain considerable distinctions between them and fintech startups. Here are some of them;
While FinTechs continue to gain ground in the financial services sector, they have some shortcomings. For instance, check out the following;
- The organizational structure of FinTechs have few barriers to change. As a result, they are responsive to innovation. Their structures can easily be torn down and rebuilt as contrasted with traditional banks.
- The key feature that distinguishes FinTechs from legacy banks is that they focus on overarching customer experience management, unlike their counterparts that focus on risk management.
- Key to the FinTechs is the readiness to embrace technology and innovation in the provision of financial services. It is important to point out that the financial sector is highly regulated, making it undesirable for legacy banks to fully embrace technology and innovation for fear of regulatory constraints. It is in this light that Stewart Bromley, of Atom Bank of the UK has stated that while FinTechs are usually associated with energy, freedom, pace, adaptability and customer centricity, legacy banks are keen on governance and risk management which effectively inhibits their innovativeness.
- FinTechs offer convenient products to customers. You can transfer funds, make purchases or even take an insurance cover anywhere and anytime. With traditional banks, you need to go to the banking hall or an ATM lobby. With FinTechs, you can also obtain credit without having to go through a long and tedious process. No paper work, no collateral, simply a click of a button on your phone or PC.
- Crowdfunding is a very unique aspect of financial technology. People need not meet physically to contribute to a cause. People in different parts of the world can make their contributions on the cloud.
While FinTechs continue to gain ground in the financial services sector, they have some shortcomings. For instance;
- Inadequate risk management expertise
- Lack of experienced leadership
- Inability to raise substantial capital
- Inability to gain consumer trust.
Clearly, both FinTechs and banks have strengths and weaknesses in the financial industry. It is for this reason that the World Fintech Report 2017 noted that the two will eventually coexist and complement each other.