Big Banks or Fintech Startups: Who will be the Winner?

The finance sector is preparing itself for an outlandish period of disruption. Modernization in the sector, including big data analytics, smartphones, blockchain technology is forcing banks and insurance companies to adapt to unstable future where some of the old policies no longer apply. This has even been seen before with Blockbuster vs Netflix, Yellow Pages vs Google and so on. However, on the contrary to these examples, a banking sector shakeup will not be a zero-sum game.

Some fintech enthusiasts argue that it is only a matter of time before newly established startups will force out the long-established competitors. Besides, the top names in finance industry will acquire these advantages that will help them with time to spread out new technology for offering improved and additional services to clients. The reckoned names in the banking industry that progress while moving forward will be the ones that make important decisions quickly.

The revolution in the fintech sector accelerated with new regulations executed in the wake of 2008 financial crisis. These regulations made various businesses less gainful for banks and opened the door for startups to jump on big data, new communication methods and other technologies to serve increased number of tech savvy consumers. Initially, banks themselves tried building these technologies in a bid to keep up with these proficient rivals. However, with the increased pace of innovation, banks have found it tough to do everything at the same volume and speed.

None of the sides have been able to carry off a knockout blow until now. For all their discussions regarding disturbing the incumbents, some of fintech startups have established brands that consumers trust at scale and meet the regulatory standards.

Big Banks or Fintech startups – Who will be the winner(s)?

To discover the answer, let’s explore the three core segments

• Corporate Banking– Banks will act sensibly while investing into the consumer banking sector. They should not only double down to remain at odds against rivals but consumer banking also emerges as an area where startups will experience most of the hurdles. While some startups are hopeful to attack these segments, they are however less likely to get succeeded because of complexity of products and services.
• SMB Banking- Heavy regulations were imposed on some of the banks after the 2008 financial crisis which, in turn, made overpriced to serve small- and medium- sized business consumers. This forced traditional banks to move away from this segment, creating lack of available resources for SMB’s. In a survey by Blumberg Capital, 74% of respondents agreed that small businesses face all kind of barriers when registering for any kind of financial services. This claims SMB to be the segment wherein nimble fintech companies are more or less ready to displace big banks.
• Consumer Banking- Banks focus on the high earners because they cannot make money servicing the majority of consumers. So, it’s no disaster that consumers feel neglected. According to the survey, it has been predicted that financial institutions need to focus on helping the average consumer.

Fintech startups are proceeding ahead with software programs that allow them to serve a wide range of customers efficiently while making money. Taking the best of best advantage from these innovative technologies, Fintech startups will be able to extend, improve and quicken banking solution. These banking solutions will be extended to a broad swath of consumers who have not been qualified for an appropriate credit history. Technology, on the other hand, will allow businesses to manage their finances online, irrespective of the location or time.

The consumer market would be prepared for the adoption of fintech however startups will be facing a large number of challenges while creating their own brands. Issues regarding trust and cybersecurity are also popping up. The survey discovered 72% of Americans concerned about the new banking services online.

Therefore, startups and incumbents need to adopt technologies that match the requirements of consumers and offer them top-notch security in the risky environment. Believe it or not, the breakthrough in fintech has left banking industry into turbulence. Banks have acquired significant advantages and they will not be superseded easily in the core banking segments as long as they switch to follow the latest trends and challenges. Besides, being vulnerable, they would perform well to identify the fact soon rather than later.