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Vineet Tyagi

Global CTO, Biz2X

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Banks Vs Fintech - Competition Or Collaboration

The explosion in the Fintech sector over the last few years has created new opportunities for the financial services sector as a whole, with the focus shifting from competition to rather collaboration.

There is no doubtthat almost every industry has had to pivot, in numerous ways just to adapt to the challenges that were brought forth by the pandemic in 2020. Financial institutions, both BFSIs and NBFCs alike have been impacted considerably, with people now working, shopping as well as banking from the comfort of their homes due to social distancing measures.

The explosion in the Fintech sector over the last few years has created new opportunities for the financial services sector as a whole, with the focus shifting from competition to rather collaboration. As Fintechs began to mature and gain market share, banks have realized the need to adapt and partner with them so that they can leverage the superior technology built by them, or else risk losing market share.

Fintech vs Traditional Banks:

· Structure and Functioning: While Fintechs can be innovative, customer-centric, and can streamline complex financial processes making it much more accessible to people, by leveraging new technologies –banks,on the other hand, might be bounded by legacy systems as well as regulatory frameworks. This is one of the reasons why banks are unable to introduce services/products that are capable ofaddressing the need of customers whereasFintechs can.

· Consumer Experience: Althoughgoing digital has been a priority for both, Fintechs are more agile and accessible. Since they work virtually, consumers are not required to be present physically to make any transactions or use any financial services. On the other hand, banks will still require some kind of physical intervention when you apply for a financial service. Traditional banking hence can end up being a little less convenient, which can lead to dissatisfied customers.

· Growth Potential: When we talk about growth potentials, both industries are quite proactive about it, though they are measured on different metrics. While Fintechs will focus on convenience inclusion and sustainability for fuelling the growth, banks are now looking at adopting features provided by Fintechs such as digital security, mobile payments, peer-to-peer lending, etc. to adapt to a digital future.

· Risk Associated: Owing to the flexible nature of regulations in the Fintech industry, it is considered to be riskier. However since it is faster, less expensive, more innovative,and user-friendly, people end up using it still. One might argue that stricter regulations mean lower risk, which would mean that traditional banking becomes a less risky option. However, leveraging technology and providing a better consumer experience is quite essential, hence in many ways, the benefits of Fintechs outweigh the risks.

What Are the Advantages of FintechCompanies and Traditional Banks Working Together?

Fintech has long been considered to be the future of financial institutions and banking, this is why it’s not a surprise that the top 50 Fintech companies in Europe have collectively raised over $16 billion in venture capital funding and are now valued at about $92 billion. Having said this, traditional banks too, have been evolving rapidly, in the way they function, owing to newer technologies such as Machine Learning, AI, analytics, etc. Additionally, Fintech start-up accelerator programmes too are gaining traction, some of which are managed by global banks such as JP Morgan, ING, etc.

While there may be an aggressive competition between the two, but there has also arisen an opportunity for Fintechs and traditional banks to collaborate and adapt quickly to the new digital world. While having been in the business for hundreds of years, banks today need to make monumental technological changes in order to meet the demands of modern-day customers, and Fintechs can offer them just that. While benefiting from the innovation and agility, banks can in return offer Fintechsyears of customer loyalty, establish networks and business size. Thus, here are a few advantages that collaboration between Fintechstraditional banks can offer:

· When comparing to Fintechs, banks have huge deposits. Partnering up would help them in building a better financial system, which would make it easier for banks to manage funds.

· Collaborating with banks will help Fintechs in being regulated under the same government institutes, which would aid them in building trust.

· Partnering with traditional banking institutions, that have already developed an airtight anti-money-laundering policy along with decades of security experience can mitigate a lot of regulatory issues for Fintechs and help in maintaining the integrity of the online financial ecosystem.

· There will be an overall improvement in the financial system, owing to the advanced technology that Fintechs can bring to banking resulting in better customer satisfaction.

Collaboration - "The New Competition”

In order to meet the technological demands that customers today have banks need to start embracing features provided by Fintechs, to improve the user experience. As the entire financial system continues to evolve, reeling from the effects of the pandemic – allocating resources to enable digital agility, is increasingly becoming a priority for banks. Hence to look at it from a win-win perspective, collaboration should be viewed as the new competition.Both parties need to arrive at long-term partnerships that can combine innovation which is the stronghold for Fintechs and support, trust, and network, which is something that banks bring to the table, to make the financial sector ready for a digital future.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house



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