The legacy financial services are trying desperately to gain a competitive edge over the innovative Fintechs. Despite having all the traditional advantages – network infrastructure, solid balance sheets, regulatory approvals, physical footprint & established business relationships with the older generation – they still seem to be fighting a losing battle. Fintechs, on the other hand, focus their services on the tech-enabled Millennials & Generation Zers, who demand tailor-made services accessible to them on their smartphones giving the best value of their money. And their explosive growth speaks volumes about the success of this model – global Venture capital funded deals topped $39 billion in 2018 , more than 100% increase over the previous year spanning 1707 deals, according to a CB Insights Research.
Over the years, we have seen the big banks get even bigger with their money-making model, off the customers – ATM fees, money transfer fees, foreign exchange fees, credit fees & the list goes on. All of this added burden on the customers made them feel like banking is a privilege not a service. With no alternative, however, they continued to get ripped off. Enter Fintechs… and a transformation in the financial landscape for the better. So how have players like Revolut, N26, Chime, Acorns, MoneyLion & others been able to beat the legacy financial system giants at their own game? The simple answer is… Innovation!
While the new entrants to the financial ecosystem were economically disadvantaged compared to the incumbent players in the form of big banks, they had nothing to lose that could prevent them from implementing an industry-disrupting strategy. The Fintechs have accumulated millions of customers in a very short span of time by adopting a three-pronged strategy – introducing innovative products, targeting the unbanked & reducing the sky-high service charges to a bare minimum or nothing since they have no overheads to take care as the traditional banks. People with low credit scores or in far-off areas with no banking services or countries where the system is broken are their primary markets. This mobile-friendly model has brought immense value proposition in the form of neobank Apps.
The traditional banks have been hard at work to ward off this competition in the form of Fintechs with partnerships, acquisitions & their own digital services to target the younger market segment. While the former two have been relatively successful, the later has fallen flat on its face. The biggest example is the sudden demise of JPM’s Bank App Finn – which was launched last year in June touted as bringing “fully digital banking experience Finn by Chase.” The app that was expected to bring a host of fintech features to capture the younger generation was supposed to evolve based on user feedback. As of now all the customers of Finn have been transferred to the traditional Chase mobile App as it became a Fintech roadkill. Some of the other big banking names who have dipped their feet in the fintech space with their own endeavors are:
- Wells Fargo’s Greenhouse
- Citizens Bank’s Citizens Access
- MUFG’s PurePoint
- BankCentre’s Rising Bank
- RBS’s Mettle
All of these projects are aimed at cutting down the influence of the ravaging Fintechs which has reduced the profits and the following of the legacy banks. Makes you wonder though if one of the biggest banks in the World (JPM) could not sustain it shiny fintech App, how well are these banks going to fare & more importantly for how long?
Despite possessing highly skilled talent, big bucks & immense resources, big banks are struggling with innovation against the more agile Fintech startups, favored by a younger generation which is fed up with higher fees, negligible returns & sluggish services. The traditional banks will need to step up their game or get ready to be run over by these Fintechs.