New fintech players have emerged during the last years, mainly due to the development of financial technology which plays a key role in defining the changes in the banking landscape. Banks blame the so-called fintech disruption that has focused on offering better customer experiences to their customers. Neobanks have developed new business models which are mainly characterized by lower costs, new digital features, faster payments, and transactions solutions. Initially, these companies were perceived as competitors who took advantage of the void that was created by the inability of traditional players to keep up with technological breakthroughs. However, big banks managed to shift towards the side of technology, and become more agile and flexible. They also dealt with their NPL problem, which might still be a burden for them today, but one that doesn’t stop them from keeping up with the innovation of our times.
During the last two years, partnerships between banks and fintech start-ups have been increasing in the norm, with the latter providing technology management, payments solutions, loan servicing, and other innovative services, enabling traditional financial institutions to offer tech-enhanced banking products. Large banks understood that the shift towards technology would not be without cost but the question that had to ask themselves is if this cost will derive from within the bank or outside. Why not partner with the growing fintech competition? Instead of building your own technology infrastructure in all banking layers, banks understood they could “hire” fintechs to do the job for them. Through direct collaborations, the two sides have a lot to gain in the future.
Which was the response of large banks?
The response of the banking industry was immediate and the transformation of traditional commercial banks would have been an illusion without the use of fintech. Banks have technologically evolved through three main generations of banking. Developing a fintech strategy to deal with the four fintech disruption challenges is the only solution for banks to transform to the ultimate Gen3 Composable phase. This phase includes Saas (Software-as-a-Service) and Baas (Business-as-a-Service) solutions that allow banks to have a much more functional footprint in terms of the prerequisites from the bank to run those applications.
Basically, the bank is moving to a Configurator of the Code instead of running it and improving it internally; the Vendors take care of that, allowing the bank to be more flexible with designing its products and services. Engineering excellence with the proper mix of analysts and software analysts’ talent creates small teams of people, who ensure the drive towards the more simple and standardized Gen3 architecture. AI true platform-oriented operation models provide respective teams the capability to improve their models, scale, and create agile solutions with APIs.
Learn more about the impact of fintech on the banking sector here