Most people see fintech startups and neo banks are something run by young, terribly hip people of the kind you see on the TV drama ‘Silicon Valley’. That is only part of the truth; the people behind them are achieving success because they embrace the technology that allows them to understand their customers’ needs and have the flexibility to develop rapidly-evolving products.
They have an advantage over the traditional banks, because the banks have IT systems that are old, slow and complex. The newcomers are not encumbered with the same problem.
The Financial Times said about the banks’ IT: “The cost of maintaining these often ageing and unwieldy systems eats up three-quarters of banks’ IT spending, according to Celent. That leaves only a quarter to spend on innovations to keep up with the rapidly emerging threat from the many technology groups and start-ups trying to steal market share in areas such as payments.”
By contrast, the neo banks ands fintech startups are up-to-date with infrastructure and have a huge competitive advantage as a result. While banks are forced to fund costly projects to create IT solutions that will integrate with their ageing infrastructure, the fintechs can invest in whatever technology they need to drive growth, knowing it will integrate with their existing IT systems.
The newcomers also have better customer insights, because they have made to their business to get to know the consumer better than the banks do. They are using data analytics tools to collect data from research and surveys, social media, and their existing customers using online and mobile applications. And they use CRM systems to personalise their product offers. PwC’s Global Fintech report reveals 75% of financial services leaders think fintech’s biggest impact will come from its increased focus on the customer.
Finally, fintech startups and neo banks make grater use of Cloud tools and this enables them to deploy apps at greater speed and they can scale up or down to meet customer demand.
Will a customer prefer to get a loan from a fintech that can complete the process and transaction in 15 minutes or go to a traditional bank where it may takes days or weeks? The answer is logically that they will go to the fintech. And will the banks try to catch up with the IT innovations and speed up their systems? That remains to be seen.