FinTech (financial technology) continues growing rapidly worldwide.
After the financial crisis of 2008, consumers benefited from the growth of a new generation of financial service entrepreneurs, who created innovative products and services as part of a “big banks Fintech” competition. Technology companies began offering digital money management services for people in emerging and developed countries.
Investors have plowed $25 billion into 4,000 FinTech firms in the past five years, according to Jim Marous, Co-Publisher of The Financial Brand. Few dollars have gone to banks. Marous writes:
As transformation of the banking industry continues, fintech firms and legacy banks are beginning to realize the benefits of working together to deliver innovative solutions and superior customer experiences to an increasingly digital consumer. Fintech firms see the advantages of leveraging banking’s large and loyal customer bases, experience with risk and regulations, a broad product set, established trust and the deep financial pockets of incumbent banking organizations.
Big Banks Fintech Financial Inclusion
Financial inclusion services, such as mobile money, microloans, insurance and international transmittance shouldn’t be left out of the picture. Some of the least served—2.5 billion people— lack affordable financial services. A variety of companies—from mobile carrier Safaricom in Kenya to Wizzit Bank in South Africa.
With the help of API’s, Fintech startups can remain nimble, designing products and services for their ideal customers while integrating with existing platforms for further outreach. They include companies that offer credit/lending services, including peer to peer, crowd-sourced, payment and financial management services.
However, traditional banks have two things going for them: relationships and reach. Yet their fast-expiring business models are being brought to task by new technology. Consumers don’t need to rely on traditional banks for their financial services.
Big Banks Compete for Business
Now that big banks Fintech strategies better reflect the upside in adapting to the new financial services market, they’re implementing strategies to to increase consumer mindshare.
Examples of banking strategies with Fintech firms:
- Venture Fund Investment
- Startup Program Creation
Although successful Fintech startups are undermining the monopoly of big banks, there is still plenty of room to grow. Investments in Fintech quadrupled from 3 to 12 billion between 2013 and 2014 with expected continued growth in 2015.
But Fintech groups do business in the billions, whereas banks deal in the trillions. Lending Club, a large FinTech loan company has handled $9 billion in loans since 2007; however, there is a total of $885 billion in credit card debit in America alone.
The Upside of Competition
Big banks might be nervous about the unfolding financial services revolution. FinTech founders find themselves in a race to build the next PayPal or Square. Competition reigns.
Riding the wave of mobile money will encourage old companies to adapt business models and new companies to find better solutions. Competition spurs positive change and growth.
To hear more about how fintech innovation is helping the underserved, click here.