The FinTech effect and the disruption of financial services

The Fourth Industrial Revolution brought the convergence of the physical and cybernetic worlds, and the digital technologies that came along with it have created new paths of innovation that have disrupted the once known as the most traditional business model: the financial services industry. Will banks and financial institutions survive the arise of the FinTech era?

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  • Organizational Issues: Banks have a large number of employees and are organized in silos. Internal communication reflects on their ability to respond fast to their customers and adapt to market changes. A good example is making a mortgage proposal, which will need a few weeks to be processed and returned to customers. All the stakeholders within a mortgage department, legal, risk and compliance have to agree to certain conditions before returning a proposal.
  • Technical issues: Banks have a huge amount of legacy systems and busy IT teams. Hundreds of legacy systems have accumulated over the years. These systems are heterogamous and even sometimes redundant. I have seen banks undertaking consolidation projects reducing legacy systems by a few hundreds but still managing redundant systems as some are business-critical systems built using technologies no longer supported. As a consequence, IT teams spend more time and efforts in maintenance work rather than in customer experience projects.

So, in order to overcome these issues, retail and investment banks still have strong strategies and possibilities to work on beyond financial assets, market position or regulatory compliance in order to avoid more losses to FinTech companies, which some are enlisted below:

  • Customer reliability: Banks and financial institutions must urgently leverage the trust people have their brands and other differentiating assets such as branches to manage their levels of satisfaction
  • Reduce the time for market: It’s not unusual for banks and other financial institutions to have a long time to market their products or services, once those may have a high risk involved, but, in a fast-paced scenarios, as the financial services market is nowadays, these institutions must rush and become pioneers in their markets to regain advantage over FinTech companies
  • Focus on technology innovation rather than overhaul: One of the greatest assets FinTech companies have is their technological innovation capabilities. As exposed before in this article, banks carry huge and complex legacy systems, and are more commonly interested in overhaul it instead of innovate it, which is a bad heritage for never having it business model disrupted. Now it is a great time to reconsider this practice.
  • Concentrate on retention, not on the acquisition of new clients: This is a common mistake that is not exclusive to banks and financial institutions, but customer centricity has been the main attractiveness on FinTech solutions, and often times banks and financial institutions forget that this has a financial impact as well, once acquiring a new client may costs around 7 times more than maintaining an existing one.
  • Dedicate more resources for surveys and research: Another example of bad heritage that banks and financial institutions carry. The fact that there were no other options to access financial services before made banks not truly interested in better understanding their clients existing or latent needs, and, as mentioned before, FinTech companies are capitalizing and succeeding exactly where banks were failing. A deep comprehension of your customers and clients needs is essential for a good customer-centric strategic plan

The Fourth Industrial Revolutions and the digital technologies that came along with it are probably causing the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs, and no firm is immune from this inevitable disruption, as well as every company must have a strategy to harness the powerful advantages of the new FinTech revolution. Although this is the first time ever the most traditional business model is suffering a great disruption, customers are likely to be the greatest winners of this battle.

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Copyright © 2016 IDG Communications, Inc.

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