Fintech is revolutionizing the modern economic environment, ranging from online banking to digital currencies and driving the sharing of economic-financial infrastructure. It also brings up new possibilities, though, and disrupts businesses and challenges regulatory structures.
Fintech poses a challenge to business as usual and provides huge opportunities, offering new markets, improving internal procedures, and even delivering clients with more cutting-edge products and services.
Regulators, meanwhile, must face the task of adjusting existing regulatory frameworks or developing new ones to effectively govern emergent sectors of this kind. In essence, institutions must either compete directly with or learn to cooperate with these new, nimble and dynamic start-up companies.
After the financial crisis eliminated the certainty that banks would be a solid financial choice, a suddenly plausible option became the concept of alternatives to a typical banking model. And digitizing financial processes were natural enterprise innovation with the technology growth.
A surge of financial technology (fintech) businesses has arisen from both these coincidental events, disruptive and transformational. The new business models for B2B fintech focused on many aspects of the financial sector, but the bulk was on payments and loans.
Through automation, retail payment, and improved loan providing through peer-to-peer lending platforms these companies pushed the financial industry into an era of technologically innovative technology.
There was considerably more snugness in the financial sector. Suddenly, financial market supremacy was not granted by banks, and competition overwhelmed the financial sector. No more was the status quo. However, there was no fintech revolution. This revolution has been changed. And competition is the first stage in an expanding transformation chain that enables both banks and customers to profit from Fintech.
Competition in Fintech
The current surge in the fintech sector is growing worldwide with individuals handling their money and company online more comfortably. These B2B Fintech firms provide technological payments, transfer of currencies, financing, online lending, and wealth management services. These enterprises compete and defeat established banks and firms for financial services. Why?
Business digitalization has enhanced B2B clients’ deliverables expectations. Fintechs provide firms that have only ever offered business on a surface level with agility, speed, transparency, and integrations. Business Insider reports that 82 percent of consumers said it’s easy to use, 81 percent stated quicker service and 80 percent said pleasant customer experience is a key value proposition for these goods.
Big banks are quite frustrated and can satisfy demand by Fintech businesses. Goldman Sachs believes that start-ups from Fintech can rob traditional banking services businesses of up to $4.7 trillion in annual banking revenues and $470 billion in profit. In addition to that, it should be said that the competition in the Fintech sector isn’t new.
There are many companies, especially in the financial industry which have a long story of competition. One of the best examples of this is cTrader vs MT4 competition in the Forex industry. As Forex is one of the biggest financial markets around the globe and there are many traders who are involved in trading processes, many of the investors are seeking a good broker, which will be able to make their trading strategy more efficient.
However, competitiveness isn’t only a bank concern, as it was already shown depending on the given example. Other fintech competitors also face each other. You get only to date with the disruption of industry standards, just like any disruptive business innovation.
Fintech companies, like it’s shown here, flood the sector and will not be the only banks that will vanish in the next few years as a result. Though these FinTech start-ups have transformed the financial system for good, the financial world will become much more hostile to these pioneers as the dust settles down and the new terrain is set.
This particularly applies to Fintechs who have just a narrow product and lack many investors’ long-standing knowledge and understanding. But don’t get me wrong, there is still growth in the fintech business. So what is it all about? Although the fintech industry is capable of overtaking banks, it also has its own problems.
Fintech lacked long-term success and broader opportunities to control the financial industry and banks lacked the agility to go head to head with Fintech, and it became clear that sustained over-the-counter survival is not a matter of competition but of cooperation.
Collaboration as a new competition
Due to the fact that fintech flourished in abundant banks, but their existing internal structure lacked automation, laws were constrained, and the agility of SaaS solutions by Fintechs could not be used. On the other hand, without the historical expertise of banks, fintech found it exceedingly difficult to win industry respect and confidence. Fintech and banks have therefore turned into two halves, and the notion of partnership has been generated.
Fintech and banks have worked together to generate new disruptive products. It has been resolved. It’s not that straightforward, unfortunately. More thinking is needed to develop a good collaboration. This suspension is perceived across the sector. In reality, 46% of banks intend to cooperate with fintech, according to Business Insider, but just 13% feel their core systems can meet the technological requirements of collaborations.
The banking sector feels that the only way to keep afloat is through partnerships with these firms. This makes sense because banks are set up to optimize safety and save expenses and not innovate. This makes sense. Fintech firms will be important for innovation. And fintech needs to be able to establish equal partnerships with banks to gain knowledge in regulatory concerns and to build stronger offers.
However, in order to achieve this, the automation and extension of this sort of partnership is necessary for Fintech and banks. Thus, automatic referral schemes are introduced.
Virtually all industries have to focus on adapting to the problems faced by 2020 in several ways. FinTech was one of the most affected industries. Whereas the trend in online banking, loans, digital and contactless payments is largely derived from Covid, it is likely to remain. In addition, they are going to continue surprisingly together. The competition for the FinTech Arena looks like a relay race rather than a winner – a team sport that includes everybody’s solutions and products in addition to current financial services infrastructure.
In fact, the worldwide pandemic has stepped up the move toward digital trade and payments to replace the experience of retailers. That’s likely partly because these FinTech companies must continue to work and operate in different lockout phases while meeting the growing financial services requirements of customers. These habits have evolved so swiftly, both at consumer and business levels, that cooperation is the only viable means of addressing them quickly.
Everybody wants to “disrupt” an industry from a Silicon Valley startup. However, FinTechs show that cooperation might be a better approach. Many of the most popular startup payment options for your morning coffee have been incorporated within the existing infrastructure of financial institutions.
This collaborative strategy creates the relevance and innovation of conventional institutions, while FinTech offers its users decades of trust, customer loyalty, and ultimate security.
The true beneficiaries are embedded finance and the increasing significance of the API in both the start-up and the established financial areas. The new competition is collaboration, and it seems that the industry embraces it.
The M&A binge (including the significant Finicity and Net purchases) of Mastercard indicates that banks are reinventing themselves, as Visa planned to acquire the Plaid (though that acquisition was abandoned on Jan 12, 2021, after it was faced with a lawsuit from the US Department of Justice).
These movements are also a means to prove the future for conventional financial institutions as the amount of debit and credit card operations decreases as alternative digital payment methods become increasingly prominent. On Jan 12, 2021, following an action by the U.S. Department of Justice, Visa abandoned plans to buy Plaid.
In the end, it fuels the financial sector, provides beneficial time-saving tools for customers and businesses, and boosts the connection between accounts, via this collaborative collaboration between banks, card networks, and new payment methods, building on the current financial services infrastructure.