Innovative financial technologies, such as Venmo, NerdWallet and LendingClub, have taken the financial-services spotlight. Those technologies, more commonly known as fintech, show little chance of fading to the background. Instead, they seem primed to give financial institutions (FIs) a literal run for their money.
Industry headlines can be deceiving, however. The growing popularity of fintech has not sounded the death toll for the traditional FI model. In fact, fintech owes a significant portion of its success to FIs. Participation and cooperation from reputable FIs can give fintech the boost it needs to have staying power in the industry.
As fintech companies work to stay relevant in the marketplace, they should consider partnering with FIs, not competing with them for the following reasons:
History goes a long way
Consumers have been turning to credit unions and community banks for the services they offer for centuries. There is an established familiarity with these institutions, which fintech firms will find difficult to win on their own. As the newcomer to the financial services scene, fintech should consider tapping into the consumer loyalty FIs currently boast.
Market share makes a difference
Fintech firms are frequently eclipsed in size by FIs. These long-standing institutions have had decades to grow their market share, while fintech companies may have only had a few months. The sheer size of FIs can give consumers a sense of security when it comes to their financial needs, something fintech firms would be wise to leverage.
Having a physical support force could mean success
With any new technology, consumers face a learning curve. It can be difficult for consumers to navigate this process on their own. FIs have the benefit of a robust, physical support force that can answer consumers’ questions and simplify the transition process. While great strides have been made by fintech companies to make their products easy to use, a personal interaction could make the difference in providing a positive consumer experience.
Bigger (data) is better
Fintech startups may be dipping their toes into the data pool, but they have a long swim ahead before they catch up to more-established FIs. During their many years of business, FIs have collected large quantities of consumer data. These assets are invaluable and represent an opportunity to identify consumers ripe for new products, like fintech.
WHAT IT MEANS
Partnership is key for fintech firms looking to succeed in an industry filled with long-standing FIs. While fintech represents an exciting new era in financial services, FIs represent a helping hand that can build fintech’s credibility and propel it forward.