The Effect of Financial Technology on Banking Industry

In the rapidly evolving financial landscape, the impact of fintech on banks has become a topic of keen interest and importance. A recent study by Marketforce LIVE reveals a startling perception among UK banks: fintech startups are not just competitors but significant threats to the established models of traditional financial institutions. This study, involving around 600 financial sector representatives, unveils critical insights into how banks view the burgeoning fintech sector.

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A staggering 81% of those surveyed acknowledged that the quality of service now trumps brand trust in attracting and retaining customers. This shift in consumer preference underscores a larger trend in the financial sector – a movement towards efficiency, convenience, and innovation, hallmarks of the fintech revolution.

Furthermore, 79% concede that fintech startups often have more appealing brands, indicating a shift in the market's direction towards these agile newcomers. The perception of fintech as a major competitor is widespread, with 59% viewing them as a global challenger capable of replacing traditional banking methods.

However, this competition is not without its concerns. About 46% of respondents perceive fintechs as a significant threat, necessitating imminent optimizations in their business models to stay competitive. Banks are currently lagging behind fintechs in terms of service speed, convenience, and simplicity, as observed by 71% of those surveyed.

Interestingly, the relationship between banks and fintechs is not just one of competition. About 30% of respondents believe fintechs will eventually lead the banking sector, while 31% see fintech as a beneficial ally to traditional financial institutions. This dual perspective highlights a complex but symbiotic relationship.

What does this mean for banks?

The industry is witnessing a shift from viewing fintech as a threat to embracing it as a partner. Fintech companies are increasingly seen as valuable allies, offering specific services and solutions like risk analysis. A case in point is the Baltic International Bank, which has engaged with fintech to enhance its operations. The bank is undergoing a transformation, adopting new business models and embracing innovative ideas and methods from fintech collaborations.

An example of this synergy is the Baltic International Bank's partnership with Sigma Ratings, an American rating agency. Utilizing an advanced technological approach, Sigma Ratings conducted an independent assessment of the bank, evaluating risks related to financial crime prevention, governance, sanctions, corruption, and reputation. This entire process, conducted online using best practice methodologies, exemplifies the potential of fintech to enhance traditional banking operations.

How does fintech affect banks?

It complements them, aiding in smarter data utilization and offering data analysis services. In today's world, where data is considered more valuable than traditional commodities like gold and oil, the concept of an Insight Driven Organization (IDO) has emerged. These are knowledge-based organizations that leverage data analytics in decision-making processes, a domain where fintech excels.

The impact of fintech on banks is profound and multifaceted. It challenges traditional banking to evolve, innovate, and become more efficient. At the same time, it offers opportunities for collaboration, allowing banks to leverage technological advancements to enhance their service offerings and operational efficiency. The future of banking lies in this collaboration, where traditional institutions and fintech startups work together to redefine financial services in an increasingly digital world.