The digitalization era made Financial Institutions enter into a challenge for more efficient, speedy, and transparent services.
It’s obvious that during the last 10 years traditional Financial institutions have encountered a number of serious shortcomings. The pandemic and rise of digitalization fully emphasized the necessity of transformation for Financial Institutions.
COVID-19 revealed the gap between expectation and proposition, especially highlighting the need for modernization and adoption of a customer-centric approach. Globalization, the integration of borders and turn-on digital technologies, and evolving regulatory landscape revealed the challenges that traditional bank service structures and systems have.
To pace up with the drastic changes in digitalization Financial Institutions need to invest, innovate and transform to remain competitive in the new reality.
According to statistics by professional services network company EY, the adoption of FinTech Adoption Index shows that the adoption of FinTech services has increased globally from 15% in 2015 to 64% in 2019.
According to the PWC report "Redrawing the lines: FinTech’s growing influence on Financial Services" more than 4 in 5 (82% of) financial services companies plan to increase FinTech partnerships in the next three to five years.
According to Statista, traditional banks and financial institutions have already started to acknowledge the advantages they will get in collaboration with Fintech companies that will expand their capabilities to provide more innovative services. According to a survey conducted in December 2020 in the United States, digital account opening (29%), mobile wallet (22%), and fraud/risk management (20%) are the areas where US executives acknowledge the partnerships with Fintech companies.
What are the main benefits collaboration with Fintech companies brings for Financial Institutions?
The collaboration of Financial Institutions and Fintechs brings innumerable benefits to both sides. Financial Institutions get technical support in navigating numerous challenges such as digital technology capabilities, compliance, and expansion into new markets.
When it comes to technology opportunities, deploying Fintech cutting-edge technologies, Financial Institutions gain agility and flexibility in providing innovative services as traditional banking institutions are limited in their technology capabilities.
Financial institutions have started to test highly innovative and disruptive technologies like blockchain, the Internet of Things, AI to pivot into new technology-based payment propositions. Utilizing Fintech’s new technologies, Financial Institutions can engage a larger customer segment.
Financial institutions can easily relinquish the control of technically challenging and time-consuming services to outsourced Fintech companies that are focused on specific areas. Fintech companies, in their turn, also gain significant recognition and enlarge their business network.
On the other side, Financial Institutions face numerous regulation difficulties when it comes to regulations and customer-centricity.
On the one hand, Fintech has a huge potential in fraud management and compliance processes that enable Financial Institutions for more viable and secure services. In general, both sides should take into consideration regulatory risks, and Financial Institutions while accommodating fintech products must ensure all regulations are properly followed.
On the other hand, Fintechs stay on top of the compliance due to the stable regulatory base of the Financial Institutions. Fintechs get a chance to be exempted from exhausting licensing and regulatory requirements, focusing on the customer acquisition and provision of their disrupting services.
In comparison to Fintech start-ups, Financial Institutions tend to have much larger investment budgets and can secure a flow of capital for Fintech development and accelerate market penetration at a faster rate due to collaboration with Financial Institutions. Another no less significant reason is the spread of the brand awareness for potential customers as the collaboration with prestigious and large banks triggers trust and confidence in the work of the Fintech company.
Fintech-Financial Institution's alliance is one of the basic elements of the future financial sector. As we can see, the customer demand triggered the penetration of digital technologies. The alliance of fintech and banks deliver transformational value for both sides increasing their potential for success.