Decoding the Difference between Banks and FinTech

May 2018 | Team Rubique

Technological innovation in financial technology is disrupting business models and creating new revenue opportunities for fintech companies and banks alike. Fintech companies are new age startups with no existing structure to change, so they can change everything. Banks, on the other hand, are financial mammoths, synonymous with trust and stability. Banks are also rapidly adopting new technologies to keep pace with relentless innovation brought in by FinTech. Many experts believe that Fintech companies are more likely to complement rather than disrupt the banking world. True, it started this way, but the scope of Fintech is growing at a fast pace. Let’s find the differences between banks and fintech.

The Digital Future is Here

Yes, the digital future is here, way earlier than anticipated and it’s Fintech which is helping shape the future. As much as banks would want to be the digital innovators, but so far they have been playing a catching up game. But luck is on their side, customers will take time to change and banks will utilize this time to reinvent themselves and become future proof.

Although Fintech players offering retail banking innovations for customer acquisition, customer experience, and payments are hogging the fintech limelight now, the future holds much more promise. So much so, that financial technology will become mainstream way sooner than anticipated. Many fintech companies have already leapfrogged into the future and are growing their customer base of early adopters. Banks are still preferred for core banking needs but it’s Fintech which is leading in the payments space.

Fintech companies were born in the digital age, banks were not. Most large banks are centuries old and have millions of customers. They already took a leap into digitization by digitizing branch banking operations into online banking and ATMs, a few decades back. Then came the era of mobility and banks made inroads in improving mobile-banking as well. So far, they have been able to retain customers.

But will it remain the same forever? We don’t think so. One area which is witnessing huge disruption is the lending space. A very large segment which was so far unserved by traditional banks has been tapped by the new age FinTech companies. Imagine the millions of small and mid-sized companies who were never on the banks’ radar for lending are now getting funded by Fintech companies. Also, think about the billions of youngsters without a credit history, never being able to tap into bank credit. Fintech is changing this at scale. Of course, these are the low hanging fruits which fintech companies are tapping into.

But it’s not all, even seasoned borrowers with good credit repayment history are turning away from banks for one reason – customer experience. Availing credit from Fintech companies is way easier than from a traditional bank. Of course, there are some modern tech-savvy banks but the majority are yet to catch up.

It’s the Culture

A startup is created with a vision which binds the founders, the team, and the company together. Every single person in Fintech startups has a single focus, a single sense of purposefulness. Legacy banks have multiple layers of people, processes, assets which are not always productive and seldom the reason for the decline in productivity, innovation, and competitiveness. There have been enough success stories in the past about large organizations including banks shedding their workforce, embracing the new normal and turning around completely. For banks to compete with agile startups, they need to change, in fact, revamp completely.

Cut the PaperWork

If you’ve ever applied for a loan, you know what I am talking about. Most of us have suffered paper overload while applying for a car loan, home loan or even a simple credit card. With Fintech companies offering simple e-KYC options, complete paperless application and instantaneous approvals, the future surely hold promise.

Customer Experience

Imagine applying for a car loan for your dream sports car, supplying payloads of paper documents and waiting for the loan approval from the bank. It may take hours, days or even weeks. Wouldn’t it be great, if you get instantaneous loan approval, someone hand holds you at least until disbursement and you get updates at every stage of the loan applications. While banks and Fintech companies, both are trying hard to improve the customer experience, the Fintech companies succeed at it at scale.

For sure, Fintech companies have a much stronger technological heritage and they use technology to disrupt, at the same time have extremely agile methodologies which gives them a huge advantage over the legacy banks.

Regulation

The financial industry worldwide is highly regulated, with extremely high entry barriers, approvals, and strict regulations. Banks have negotiated these turbulent waters for long and are now adept at it but Fintech companies are quite new. While most do not come under the purview of financial regulation yet but regulation in near future is imminent. Consider the case of a leading payment wallet which at some point was disrupting the payments space in India but currently is a payments bank, under the purview of regulators and regulation. This crossover makes me force that a company which started off as a disruptor is now part of the mainstream financial world.

Is there a Synergy?

Banks have access to a large pool of customers and capital which Fintech companies do not have, at the moment. Banks need the technology which Fintech companies have. No wonder, banks, and fintech startups see more value in cooperation than in rivalry at the point and have joined hands to provide better financial services to the end customer.

Call it a marriage of convenience but this marriage is here to stay. For banks, it provides access to nimble fintech solutions devised by startups, for fintech startup banks provide the customers and the data. A win-win situation for now but will it turn into an all-out war for survival someday. Time will tell.