Fintechs Shift from Growth to Profitability
Fintechs have been disrupting the banking industry with their novel products and services, such as peer-to-peer lending, mobile payments, robo-advisors, and neobanks. These fintechs have leveraged technology, data, and customer insights to create value propositions that appeal to the digital-savvy consumers. They have also benefited from the abundant funding from venture capitalists and other investors who were willing to support their hyper-growth strategies.
However, the COVID-19 pandemic and the subsequent economic crisis have changed the funding environment and investor sentiment. Fintechs have faced lower valuations, reduced revenues, and increased competition from both tech giants and incumbent banks. As a result, many fintechs have had to cut costs, lay off staff, reduce marketing budgets, and close unprofitable customer segments. They have also had to pivot their business models to seek new sources of income, such as subscriptions, commissions, or fees.
According to a report by PwC, fintechs are now focusing on evolving to sustainable business models centered on disciplined costs, programmatic partnerships, and measured expansion. This fintech transformation warrants attention from retail bankers who face many of the same challenges and opportunities.
Fintechs Collaborate with Banks for Mutual Benefits
One of the key trends that has emerged in the fintech landscape is the increasing collaboration between fintechs and banks. Fintechs have realized that they need the risk management expertise, regulatory capabilities, and customer trust of established players to scale their businesses and reach new markets. Banks have also recognized that they need the innovation, agility, and customer-centricity of fintechs to enhance their digital offerings and stay relevant in the market.
According to a survey by The Financial Brand, 60% of financial institutions are already meeting the digital banking needs of customers through collaboration with fintech firms and other third-party solution providers. These collaborations can take various forms, such as white-labeling, licensing, co-branding, or joint ventures. They can also cover different areas of banking, such as payments, lending, wealth management, or customer engagement.
By collaborating with fintechs, banks can leverage their complementary strengths and create win-win outcomes for both parties. Banks can access new technologies, products, channels, and customers without having to invest heavily in research and development. Fintechs can benefit from the banks’ infrastructure, distribution network, capital base, and regulatory compliance without having to build them from scratch.
Fintechs Innovate with New Technologies and Customer Expectations
Another trend that is shaping the future of retail banking is the continuous innovation by fintechs with new technologies and customer expectations. Fintechs have been at the forefront of adopting emerging technologies such as artificial intelligence (AI), blockchain, cloud computing, biometrics, and 5G. These technologies enable fintechs to offer faster, cheaper, more secure, more personalized, and more convenient financial services to their customers.
Fintechs have also been responsive to the changing customer expectations in the digital age. Customers are demanding more speed, convenience, transparency, and control over their financial lives. They are also looking for more value-added services, such as financial education, advice, and wellness. Fintechs have catered to these needs by offering user-friendly interfaces, real-time feedback, customized recommendations, and holistic solutions.
By innovating with new technologies and customer expectations, fintechs are creating new market segments, such as gig workers, millennials, women, and underserved populations. They are also creating new business models, such as embedded finance, platform banking, and open banking. These innovations challenge the traditional boundaries of banking and create new opportunities for growth and differentiation.
How Banks Can Adapt to the Fintech Transformation
The fintech transformation poses both threats and opportunities for banks. Banks need to adapt to the changing market and customer dynamics to remain competitive and relevant in the future of retail banking. Some of the steps that banks can take are:
- Embrace digital transformation: Banks need to invest in digital capabilities that can enhance their efficiency, agility, and customer experience. They need to adopt cloud-based solutions that can reduce costs, improve scalability, and enable innovation. They also need to leverage AI and data analytics to optimize their operations, risk management, and customer insights.
- Foster a culture of innovation: Banks need to foster a culture of innovation that can encourage experimentation, collaboration, and learning. They need to create dedicated teams or units that can focus on developing new products or services that can meet the evolving customer needs. They also need to partner with fintechs, tech firms, or other external stakeholders that can bring new perspectives, skills, and resources.
- Enhance customer value proposition: Banks need to enhance their customer value proposition by offering more than just financial transactions. They need to provide more personalized, holistic, and value-added services that can help their customers achieve their financial goals and well-being. They also need to create more engaging, interactive, and seamless customer journeys that can increase loyalty, satisfaction, and retention.
The future of retail banking is being shaped by the fintech transformation. Fintechs are impacting the industry with their shift from growth to profitability, their collaboration with banks, and their innovation with new technologies and customer expectations. Banks need to adapt to these changes and leverage their strengths to create a competitive edge and a sustainable future.
