Frenemies in FinTech – what financial institutions have to learn
While developments in digital technology have been impacting broadcast, media, and advertising companies for quite some time, the financial services industry has been among the last to feel this disruption. The global crash of 2008 created new opportunities for entrepreneurs to offer technology-backed financial solutions that made transactions easier and more cost effective– and consumers have been flocking to them ever since.
With global FinTech investment rising from just $4.5 billion in 2011, to over $33.7 billion in 2015, FinTech companies are definitely a force to be reckoned with. But financial institutions who are learning from their tech-savvy challengers are changing for the better. In fact, it’s one of the top trends Vantiv identified for financial institutions in 2017.
By capitalizing on their innate advantages and embracing technology innovation, financial institutions can be successful in a space increasingly encroached upon by FinTech companies. The opportunity even exists for financial institutions to take a leading role in the financial services offerings of the future. Let’s explore the possibilities.
FI’s inherent advantages over FinTech
When it comes to financial services, it turns out that longevity and brand recognition still mean something to consumers. According to Statista, over 70 percent of financial institutions executives claimed customer trust and established relationships as their leading advantages over FinTech firms. And BI Intelligence reported that 52 percent of FinTechs are challenged by gaining visibility and awareness among consumers.
Secondly, the risk management and security tools that are part and parcel for most financial institutions’ offerings (in large part driven by compliance with industry regulations) are attractive to consumers. Accenture reported that over 85 percent of consumers trust financial institutions to securely manage their data, while just 2 percent trust consumer technology companies.
Data and analytics is another area where financial institutions have a leg up over FinTech, especially when this service is offered in partnership with companies like Vantiv. All this information can be leveraged for product and service suites specifically designed to attract and retain cardholders.
Additional advantages financial institutions have is the ability to achieve a greater scale and reach of operations, a more robust product and services offering, and a proven means to deliver these services. In contrast, FinTech companies generally offer niche products and services that are most easily accessed via limited channels. FinTechs are not blind to this fact—61 percent report that achieving scale and reach is the top challenge they face, according to ACI Universal Payments, MagnaCarta.
What FIs need to learn
Financial institutions certainly face some barriers to digital transformation. BI Intelligence reports that half are held back by a legacy technology environment. Other barriers include lack of unified vision for digital across enterprise (44 percent), lack of skills and expertise (38 percent), and lack of budgets for the initiative (31 percent). Lack of dependable technology partners is also cited as a barrier.
Still, while FinTech companies seem so have mastered most of these areas to their advantage, they still face roadblocks because of inexperience. Financial institutions can get ahead of the curve and create a fertile ground for technological innovation to flourish.
For example, financial institutions can implement services that improve the cardholder experience. An effective way to do this is by investing in new payment technologies. Cardholders not only expect more from their financial institution, but also rely on their mobile banking apps for tracking spend, budgeting, and saving. Over 20 percent of consumers who switched their financial institution in the last 12 months did so in order to get a better mobile banking app.
There’s no one path for financial institutions taking on FinTech, but partnership seems to be key. Consider how financial services firms in North America are working with FinTechs, according to PwC, 2016:
- 44% engage in joint partnerships
- 17% buy and sell services from/to FinTech companies
- 17% establish startup programs to incubate FinTech companies
- 17% set up venture funds to fund FinTech companies
While FinTechs have figured out how to use technology to improve the customer experience, financial institutions still have the advantage of cardholder relationships, risk management proficiencies, and ample resources. FinTechs and financial institutions that bring their individual strengths to the same table, can ultimately offer the financial technology products consumers today are seeking.
Technology continues to outpace expectations in the financial services sector, with the only probable reins on growth being held by the regulatory arms of the industry. Financial institutions that take a cue from FinTech and lay the groundwork for technology innovation are in the best place to compete.
Vantiv offers many of the tools and strategies that financial institutions can leverage for success. A view into the entire payments ecosystem allows Vantiv to provide clients with actionable insights that contribute to business growth. To find out more about Vantiv’s offerings, visit Vantiv.com/fi, and view our infographic, which identifies additional trends for 2017.