If you have been following the unrelenting pace of innovation dominated by digital fintech solutions in recent years, you will have got the impression that the future of banking seems uncertain. The convergence of technology and finance is an inexpensive and profitable solution that reveals new possibilities, but at the same time undermines the standing of traditional banks. Are banks heading for trouble?

The expectations of users themselves are rising steadily. Accustomed to using increasingly simple yet more sophisticated technologies, they then turn their sights to their banks, from whom they expect similar changes. To remain relevant, banks must keep their finger on the pulse of such changes.

What exactly is fintech?

The word fintech is derived from the words finance and technology. These are technologies that are dedicated to financial services and innovation. However, as it is a sector that is constantly evolving and coming up with new solutions, banks have no choice but to adapt to it.

Fintech makes the world go round

Companies such as Stripe, Klarna, Square or Chime have managed to push through the established banking system and find their place in the market. Although over time banks have started replicating these technologies, fintech players have not only managed to find a stable place in the market, but have also managed to grow steadily.

According to The Business Research Company, in 2019 the fintech segment was already worth nearly $112 million. By 2030, massive growth is projected, reaching just over $325 million.

The future lies in technology

However, we do not need to speculate on whether banks will disappear altogether. History repeats itself. In the past, it was the advent of the internet during the dot-com era and more recently (in 2014) it was innovation in the form of smartphone payments. All of these developments forced banks to implement the new solutions, albeit with a slight delay.

Neo banks (digital banks), fintech and Big Tech (a handful of companies with the highest market value, monopolies – like Apple or Meta) are once again shaping modern banking. Whether it’s payment models such as “buy now, pay later” or “payday loans”, we can expect the same innovations to be seen, even if somewhat delayed, within the big banking institutions.

Symbiosis – banks and fintech

Even though fintechs provide key customer-centric benefits, traditional banks still have a place in the market. They continue to retain a loyal customer base and the trust of the general public. What is important is that in the future, they start to focus equally as much on the customer experience (UX) and provide a holistic approach to finance.

The inevitable change they will face in the future will be their transformation. In the coming years, banks should resemble an IT company more than a financial institution.

Fintechs, in turn, can also take their cue from banks, especially when it comes to risk management, regulations and cyber-security, which traditional banks have delivered well on, thus far. A good example is the PSD2 directive, which European banks have gradually implemented, and they are soon to move to the PSD3 framework.

This will harmonise and simplify the operation of both payment schemes and digital wallets. Transparency of cross-border payments, authentication of end-users and security to prevent increasingly frequent fraud also present challenges.

The solution for banks? Innovation.

The integration of fintech applications and solutions into the banking sector is a necessity for retained competitiveness of banks. Banks have the ability to bring systems together under one roof, which in the fintech world follows the model – one project = one narrow specialisation.

Banks can only have the upper hand if they get the IT infrastructure right and manage to come up with innovative applications or platforms – including hassle-free money management, investment options, loyalty programmes and simple payments. The biggest challenge will be designing an appropriate IT architecture for the entire ecosystem.

Banks should walk hand in hand with fintech

The development of virtual voice assistants and chatbots has not only increased customer satisfaction, but it has also replaced skilled professionals by making this service available 24/7. It is important for banks to evolve their services at the same pace that people’s banking behaviour is changing. Some of the major benefits of integrating fintech within banks include:

  1. The technology gap: Fintech has the upper hand in technology. Banks can use fintech know-how to create APIs or extend their architecture.
  2. Customer satisfaction and brand building: Fintech is faster, more efficient and comes at a lower cost. Fintechs earn customer trust through better service and on the basis of recommendations.
  3. Smartphone usage and real-time transactions: Any business that wants to connect with its customers should offer mobile-friendly products. This includes real-time transactions and information. The pandemic has largely moved us into the online sphere and people no longer want to wait in line at banks. Fintech takes care of tracking the status of transactions, automates services and increases the efficiency of the entire banking process.

Focus on processes and agility of internal systems

Technologies such as Blockchain, Web3.0, artificial intelligence and machine learning are increasingly making it easier for customers to access financial services. This is true not only for fintech players, but also across the banking sector.

On the other hand, for these institutions this will mean even more pressure on developments within the IT sector, whether it is cloud computing, big data processing or the creation of algorithms for financial risk management.

New platforms for both fintech and banks require a focus on processes and agility of internal systems. To give you an idea, just implementing small tweaks in the onboarding of a financial application, new APIs or iterations of a CRM application requires more work than the development of that functionality alone.

The entire infrastructure needs to be stable even after these features are added so that the whole process runs smoothly and doesn’t collapse. This involves understanding and analysing where we are now and what state the system itself is in. The need for an in-house team to have a strong technical background will be replaced by collaboration with a strong IT partner who can take on these responsibilities.

Ján Švantner

Challenges in the form of outdated systems

The biggest problem could be posed by legacy and outdated systems that underpin much of the banking infrastructure. Here, a comprehensive audit and upgrade of systems is needed. This will also give banks greater flexibility and reduce the cost of managing technology solutions.

Analysing data and providing personalised, tailored solutions is a key benefit that banks can use to their advantage, but it needs to be defined before any development can take place. 

Fintech projects led by us

Our experience with fintech projects shows that focusing on processes and agility of the entire project development is key. That’s why when working together, we choose a strategic partner approach rather than a vendor approach.

In this way, we also find insight into a much broader scope of the whole project, architecture and infrastructure. Once we understand the desired solution, we can tell exactly where we need to start and what processes to choose to achieve the desired outcome. Using the SCRUM method, we implement this vision in regular sprints to systematically build the entire solution on a solid foundation.

Such a compact collaborative model can work in the long term and can also be embedded throughout the entire project, which is crucial nowadays. It can also mean that, for example, in the audit phase we find that we don’t need to change the whole system and an hour-long consultation with our expert is enough to resolve the issue. Finding the most effective solution will save the company from redesigning the entire platform, where only a single fundamental flaw might need to be adjusted.

For projects that also require the presence of specialists on a daily basis, we prefer to use the team extension model. In the fintech startup scene, this can move the project by leaps and bounds and eliminates the need to hire senior full-time developers and specialists. It’s about dedicating our experts to your team, so to speak.

Questions? Let’s talk

If you are looking for a suitable way to build your fintech startup on solid foundations, or to improve and streamline your IT solution, contact us. We will be happy to provide you with a free no-obligation tech consultation with one of our experts.

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