The finance sector is preparing itself for an outlandish period of disruption. Modernization in the sector, including big data analytics, smartphones, blockchain technology is forcing banks and insurance companies to adapt to unstable future where some of the old policies no longer apply. This has even been seen before with Blockbuster vs Netflix, Yellow Pages vs Google and so on. However, on the contrary to these examples, a banking sector shakeup will not be a zero-sum game.
Some fintech enthusiasts argue that it is only a matter of time before newly established startups will force out the long-established competitors. Besides, the top names in finance industry will acquire these advantages that will help them with time to spread out new technology for offering improved and additional services to clients. The reckoned names in the banking industry that progress while moving forward will be the ones that make important decisions quickly.
The revolution in the fintech sector accelerated with new regulations executed in the wake of 2008 financial crisis. These regulations made various businesses less gainful for banks and opened the door for startups to jump on big data, new communication methods and other technologies to serve increased number of tech savvy consumers. Initially, banks themselves tried building these technologies in a bid to keep up with these proficient rivals. However, with the increased pace of innovation, banks have found it tough to do everything at the same volume and speed.
None of the sides have been able to carry off a knockout blow until now. For all their discussions regarding disturbing the incumbents, some of fintech startups have established brands that consumers trust at scale and meet the regulatory standards.
Big Banks or Fintech startups – Who will be the winner(s)?
To discover the answer, let’s explore the three core segments
- Corporate Banking– Banks will act sensibly while investing into the consumer banking sector. They should not only double down to remain at odds against rivals but consumer banking also emerges as an area where startups will experience most of the hurdles. While some startups are hopeful to attack these segments, they are however less likely to get succeeded because of complexity of products and services.
- SMB Banking- Heavy regulations were imposed on some of the banks after the 2008 financial crisis which, in turn, made overpriced to serve small- and medium- sized business consumers. This forced traditional banks to move away from this segment, creating lack of available resources for SMB’s. In a survey by Blumberg Capital, 74% of respondents agreed that small businesses face all kind of barriers when registering for any kind of financial services. This claims SMB to be the segment wherein nimble fintech companies are more or less ready to displace big banks.
- Consumer Banking- Banks focus on the high earners because they cannot make money servicing the majority of consumers. So, it’s no disaster that consumers feel neglected. According to the survey, it has been predicted that financial institutions need to focus on helping the average consumer.
