We talked a lot about how major financial institutions compete with fintechs, and now we have come to the time when the two spheres are engaging strategically. Innovative fintechs are using new approaches and technological solutions to enter the world of financial services, building economic models similar to banks. There are also fintech infrastructure providers that help banks and other types of financial institutions to digitalize, improve their risk management and customer experience.
The future for fintech is promising:
AI contributes to evolution: machine learning starts to be a necessary part of fintech analytics. It does not serve a disruptive lean forward, but machine learning approaches enable to improve performance of current fintechs.
Funding gets more selective: fintech boom has been there for a few years now, and even though the overall funding is much higher than in other industries, investors are now more leaning towards proven, promising companies. The good side of it is that it challenges many fintech companies to create a sustainable business model, taking the industry to the next level.
Outstanding UX is a default: companies without a great in-app customer experience are doomed to fail. Simple interfaces that are easy to use are only a small part of customer attraction. Fintechs now need to find new ways to differentiate themselves from others in the industry.
Incremental growth: established financial institutions realize the importance of digital innovation, but the costs of changes are high. Many large companies are thinking of replacing their core IT systems in the next years. Fintechs will face a battle with larger institutions for core infrastructure, which may create a challenge for newer companies as the process of compliance is taking long, but established firms already have their vendors on board. This is why, the growth will be incremental, starting with fintechs targeting smaller banks, while fine-tuning their products and building brands.
Source: McKinsey
