Many believe the banking and lending industry to be a zero-sum universe – if a competitor gains any kind of edge, it's to the detriment of everyone else. That's why national, regional and community banks and credit unions are pulling out all the stops to maintain their customer base to counter start-up fintechs nipping at their heels. They consider so-called "new entrants" – of which fintechs are included – to be a threat, and rightly so at face value. New entrants now account for 17% of all financial institutions, according to estimates from Accenture.
Furthermore, according to a report from Ernst & Young, the U.S. currently has the second-largest fintech adoption rate at 23% among small-to-midsize enterprises, behind China (61%) and ahead of the United Kingdom (18%), South Africa (16%) and Mexico (11%).
"The U.S. currently has the second-largest fintech adoption rate."
Those who ascribe to the zero-sum theory might think the rise of fintech poses an existential threat to legacy financial institutions. However, an increasing number of FIs are challenging that notion by adopting a shared goals mentality. In short, they're not viewing fintechs as competitors, but as companions, all with the shared intent of delivering a better product and experience for customers and business owners alike.
Major enterprises have begun to jump on the fintech partnership bandwagon. In 2016, for example, Goldman Sachs acquired Clarity Money, an app developer whose free-to-use download enables users to do more with their money, such as track their spending habits or open a high-yield savings account, American Banker reported. Others have followed.
Where banks are unable to partner with an existing fintech, some are launching their own or setting up programs that make joining forces easier. This is precisely what a bank based in Kansas City, Missouri did in 2018 with the inception of Fountain City Fintech. Founded in 2018, the division's mission is to help make fintech-bank partnerships easier and faster by reducing some of the red tape involved.
What's the galvanizing force to these seemingly odd couple pairings? Some might contend that it stems from the age-old adage of "if you can't beat 'em, join em."
Fintechs and banks are leveraging one another's capabilities
In reality, it's largely due to the strengths and weaknesses of banks and fintechs. In other words, where banks may be struggling, fintechs are often thriving; and where banks are in the lead, fintechs may be lagging behind.
Case in point: customer satisfaction. While banks and credit unions have made some rather significant strides in the happy customer department with changes to branch design, automation and the omnichannel experience, fintechs have honed in on some details that resonate with consumers.
A classic example is overdraft fees. Banks may issue penalties for each overdraft, but fintechs are known for waiving these or offering other products that have lower fees than banks, or no fees at all.
Fintechs also tend to be more lenient when it comes to loan approval. This has proven appealing for millennials – many of whom may be settling down to start a family or buy a house – to make the switch. Retaining these young customers – or increasing their level of engagement – hasn't come easily for banks. Only 25% of them are considered "fully engaged," not only with retail banks but other major industries.
Boyce Adams, Jr. senior vice president of financial services at AvidXchange, told PYMNTS.com that fintechs are providing the services and products that customers want, so it's in banks' interest to adopt their strategies.
Mobility is fintechs' bread and butter
Furthermore, fintechs are successfully utilizing mobile technology. Smartphones have redefined consumer technology in an extraordinary number of ways. Indeed, based on a recent poll conducted by the Wall Street Journal, close to 33% of millennial customers point to the rise of digital as having the single biggest impact on how they use and manage money. Roughly 15% of Generation X and 5% of boomers made the same claim.
As has been documented here before, today's consumers truly do value in-person banking, specifically for things associated with investing and financial advice, thus the banking advantage. But they also appreciate the mobility and simplicity of which fintechs are well known. As noted by American Banker, banks that can reap the digital transformation and customer satisfaction prowess of fintech and the infrastructure they themselves have at their fingertips, everybody wins: fintechs, FIs and – most notably – customers.
Competition is the mother of innovation, and if you have an opportunity to form a tag team with fintech, it's one that is worth considering. Whatever you decide, BranchServ will be at your side. We can help your facility become more customer-centric by not just meeting, but exceeding all of your security, technology and branch transformation expectations. Contact us to learn more.