How Banks Can Use Fintech to Beat Fintechs

The financial services sector is complex and fast moving. Right, tell us something new. Then again, this statement’s never been more relevant—investments in fintech rocketed in 2018, hitting the $39 billion mark worldwide . Twice as much as the year before.

February 2019: we have more than 12,000 fintech startups worldwide, all aiming to conquer the market. There are 39 fintech Unicorns, valued in aggregate at $147 billion. It is simply one of the fastest growing industries in the modern world.

Until not that long ago, banks had always been in the driving seat. Today, they are well aware of the possible financial implications and impact the fintech revolution could have on their reputation. And while they are investing in engaging solutions to close the gap with their challengers, the 2018 World Retail Banking Report points out how poorly they are doing in the key area of customer satisfaction: only 50% of customers rate their banking experience as positive, whether at the bank’s branch, via the mobile app, or their website. That’s exactly what innovative fintechs have in their sight, aiming to woo those unhappy customers away.

To keep their position of financial caretaker in a multi-pronged ecosystem, banks are increasingly focusing on digitizing core business processes and reviewing organizational structures and culture.

Digital with a human touch

Digitalization forces the industry to reimagine and reinvent itself – no longer focusing purely on its own goals, but solving the problems of its customers. Challenger banks and fintechs do digital better, faster and cheaper. Simple as that. Banks like Revolut or N26 have the advantage that they built their company on the newest technology available. They can integrate new products more quickly, connect more easily with 3rd party services, and they don’t have expensive branches to support out on the streets.

Changing banks used to be a hassle, but now it’s a piece of cake. The reasons for leaving or opening a second (or third) account are changing too. A recent study shows that about 20% of U.S. consumers would change banks for a better digital/mobile service.

Incumbents have been slow to react and change. Then again, they haven’t lost much business—yet. Their advantage is that trust remains high, despite financial crises. But don’t get this wrong, there is no way back. For example, in the UK, 7 out of 10 consumers are satisfied or very satisfied with their digital-only bank. In the U.S. 72% of all banking interactions are digital with millenniums leading the way. In Germany, that’s 59%.

If banks want to keep up with challengers and continue to lead, they will need a strategy that connects their customers with their digital life, lifestyle, and even their personal values. They will need to adapt, and, if they manage to blend a human touch with the digital services that align with today’s customer expectations, creating a win-win situation, they could be in pole position for another few decades.

The digital challenge for big banks

The traditional protagonists are slowed down by stacks of legacy technology and patchwork core systems, which inhibit them from responding quickly to market trends and customer demands. In too many cases the risks and costs of undertaking a wholesale digital transformation program are just too much to bear.

Banks these days are increasingly looking at channel-agnostic, API-based banking platforms that connect their run-the-company cores with front-end customer interfaces. It’s a more cost-effective and user-friendly approach, minimizing a bank’s system downtime risk. Typically, these technology hubs run on-premise or in the cloud, which they are natively designed for. In addition, they connect easily with 3rd party fintechs providing easy-to-integrate building bricks that enable individualized communication by advanced data analytics. This concept gives banks the opportunity to continue their “classic” banking activities using their core systems as well as connect, curate, and manage new services. It allows the “new” bank to keep owning their customers while offering the innovative products the market is asking for.

A study by EFMA/Infosys highlights Open APIs, Advanced Analytics/AI and Conversational Interfaces (chatbots and the like) to be the top 3 technologies that will influence banking in 2019.

Regtech and Big Data

Banks not only face the large task of innovation but also the task of implementing rules such as PSD2 and GDPR.

Regulation is high on every financial firm’s agenda. Companies continue to drive the efficiency of risk and compliance programs to meet applicable laws, regulations, and supervisory expectations. By nature, the deadlines are strict and require wholesale change across multiple departments. Failure to comply can damage a firm’s reputation, let alone expose it to huge financial risk.

Big Data is very much the buzzword today, and rightly so. The impact of the digital transformation drive and the cloud means that, globally, one of the most valuable assets is data. It defines every industry, not just banking, and if they are to thrive in this new world, financial firms need to quickly, efficiently, and securely learn how to handle and harness the power of this invaluable asset.

All of the above adds huge financial strain on a firm’s balance sheet. Adding in the increased competition means that all organizations are having to find more ways to save money. Automation is the watchword of the hour, and banks are realizing that through smart use of collaborative technologies. As such, they can dramatically improve efficiencies which not only help to cut costs but also streamline processes and provide improved services to their clients.


The bar has been raised and don’t look for it to be lowered any time soon. It’s been raised by technology, competition, big techs, and youth culture. The key thing to remember is that digital transformation is not about technology only. It’s equally about how our customers can use it to offer relevant, meaningful services and keep up with today’s market challengers. Ultimately, consumers should recognize the value behind the perfect, personalized service and be willing to pay for it. Convincing them is just another challenge.

This article was published in Aspioneer’s magazine – Fintech Innovators to watch in 2019:

Sources: Statista, CB Insights, The Bank Marketer’s Playbook 2018 by Resonate, PACE Report 2018 by FIS, 2018 Retail Banking Report by CapGemini/Efma.