Now, thanks to technological advancements, individuals and companies can access a broad range of financial services offered by various financial institutions and Fintechs. However, in some cases, this has led to competition between traditional banks and Fintechs. As a result, the following question arises: Do Fintechs and traditional banks necessarily have to compete? In this article, we will attempt to answer this question.
Traditional banks
When discussing traditional banks, we refer to financial institutions with a physical presence, whether through central offices or branches in different regions or territories. Usually, their service stands out for being carried out in person; however, they currently have financial tools allowing them to have an online presence.
Fintech
The word Fintech is a combination of the English words Finance and Technology, which translates as “financial technology.” Fintech refers to companies that use technology to offer efficient, innovative, and accessible financial services. Generally, such technology consists of a tool, platform, software, or application that allows users (companies or individuals) to access different financial products or services.
Should Fintechs and traditional Banks compete?
Because financial services are provided by both traditional banks and Fintechs, in some cases, there is significant competition for access to a percentage of the market; however, competition in the financial sector is a positive thing, as this allows end users (whether individuals, businesses or companies) to have more alternatives and access to better financial products and services.
Although there is currently a great deal of competition in the financial sector, not all traditional banks must necessarily compete against all Fintechs, as in many cases, both can work together and create synergies.
As we saw in our previous article, an example of this is when a bank “leverages” the technological platform of a Fintech, using this ecosystem to provide a better service to customers or users. There are many future environments where Fintech and traditional banking can work together, developing different mixed products/services that meet the market requirements and improve the quality of life of end users.
Benefiting customers
The common goal of Fintech and traditional banks is to offer financial solutions that solve the problems of their customers/users, thus improving their quality of life.
At this point, it is crucial to highlight that Fintechs, thanks to their contribution of technology and innovation in the financial sector, have been capable of obtaining a significant market share in recent years, mainly due to their rapid growth and adaptation to new market needs.
However, we must emphasize that traditional banks continue to be relevant in the sector even when some of their technological platforms may be considered obsolete or unfriendly, they have a recognized brand and a considerable database and customer base (product of several decades of work in the sector), which generates a positive image, in addition to generating more stability and confidence to their customers/users.
As we can see, both alternatives have their well-defined strengths and weaknesses, which can complement each other perfectly and generate different alliances, collaboration agreements, and partnerships, offering more benefits for each of the parties since their objective is the same: to benefit the clients/users of the financial sector.
Collaboration examples
Below are some examples of collaboration between Fintech and traditional banks:
Technological leverage
The most well-known type of collaboration may be when a traditional bank hires the services of a Fintech to leverage its technological platform and provide a better service to its users. Instead of renewing or developing a new technological platform (its own), it “leverages” a pre-existing modern platform (developed by a Fintech).
Synergy
Some Fintechs seek partnerships with certain traditional banks to leverage their financial resources, regulatory expertise, and pre-established customer base. This collaboration can be mutually beneficial, allowing traditional banks to take advantage of Fintechs’ technological innovation while Fintechs can access a more significant customer base (from conventional banks).
Financial infrastructure
Fintechs sometimes rely on existing financial infrastructure, such as payment networks, agreements, permits, and banking regulations. Collaborating with traditional banks can make it easier for Fintech to access such financial infrastructure and expand its reach and influence.
Risk management and regulatory compliance
Banks have a long history of risk management and regulatory compliance, a product of several decades of experience. In this case, Fintechs can partner with traditional banks to leverage this experience and address the regulatory challenges of the sector.
What do you think about this topic? Do you know other examples of collaboration between Fintechs and traditional banks?
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