If you follow Financial Services, you have probably read countless articles about Fintech companies, and your eyes may glaze over at the mention of the term.
“Fintech” has become a ubiquitous buzzword in the financial sector. The term’ is used interchangeably to describe both technology-driven innovation across Financial Services and also a specific group of companies that combine innovative business models with technology to enable, enhance, and disrupt the Financial Services sector.
While the recent period of prosperity for Fintech companies attracts the most attention, we should recognize that technological innovation has been a hallmark of the Financial Services world for many years. Some may argue that one of the greatest Fintech innovations is the automated teller machine (ATM), which celebrated its 50th birthday just a few years ago. Now, we even have an ATM in Antarctica. In case you are planning to visit, there are a few coffee shops and bars in Antarctica that only accept cash.
Incumbent Financial Services providers have proven they have the ability to build technology. Technology advancements and thousands of patents on that technology prove the point. But, what they lack is the start-up driven innovation of the Fintechs. This mindset has helped Fintechs enter the passing lane with highly targeted products and services, creating pressure for the incumbents.
The Fintech Advantage
Fintechs have a new way of approaching the financial industry that is not tied to a legacy of operations and organizational rules and structure. As a result, they have the ability to provide products and services that can be accessed faster, easier, and/or cheaper than what banks offer.
Fintechs’ obsession with providing an exceptional experience has delivered tangible benefits for customers across channels, including more choice, better services and lower prices. This deeper understanding of customers has created specialized products and services that align with the way customers want their relationships with banks to operate in their day-to-day lives.
How will Fintechs continue to grow and survive?
While consumers have been the real winners with the entrance of Fintech products and services, there also will be winners and losers among the Fintech companies. Some will demonstrate staying power, while others will fail to find their place in the market. As Fintech companies reach their next phase of growth, they will face several challenges.
One area that Fintech companies must understand is the importance of data. The ability to access and make sense of data is what’s behind Fintech’s acceleration as an industry. Startups are giving the incumbents a run for their money, not because they’re generating or accessing more data, but because they’re looking at it differently and using it in new ways. When a Fintech company gets clarity around the data, makes sense of it, organizes and cleanses it and combines traditional and non-traditional sources in a new way, they can out-maneuver and out-innovate the incumbents.
Fintech entrepreneurs also need to prepare for growth by maintaining their operational health. Innovation will remain an important part of the mix, but it is equally important to have the technology and processes in place that enable companies to scale and ensure they continue to provide the experience customers have come to expect. This includes business continuity, regulatory compliance, data security, and the ability to work with other vendors and satisfy government regulators.
So far, Fintech has been fueled by a stream of capital and endless ideas. But as we shift into the cycle’s next phase, the landscape will likely look very different. The companies that survive will need to extend their reach and the depth and breadth of their customer relationships. The survivors must create frequent interactions with customers, above and beyond today’s needs-based transactions, to strengthen customer relationships. Today’s customers want a Financial Services provider to be clairvoyant and anticipate their needs. This will enable Fintechs to play a more central role in their customers’ lives.
Next month, Acxiom will release its first eBook on the Fintech industry. This eBook will outline trends we have identified, their implications for traditional Financial Services providers, and strategies for successful Fintech companies to follow.
So please keep an eye out for this insightful eBook in June, and prepare to see some important tips for the best ways to position your company to be successful in this rapidly changing Financial Services landscape.