The entire concept of banking as we’ve known it is changing. The difference between banking in years to come and years prior will soon seem worlds apart. Commonly discussed are the impacts that modern financial technology has had on the banking sector and the generations of consumers growing up with access to it. This has made the debate between contemporary and traditional banking very much back and forth. What we’re seeing are FinTech companies who are taking over the banking sector but also looking for partnership opportunities with banks. The question then becomes, what is in the best interest of consumers? 

It’s been repeated time and time that convenience is the primary driver of usage in addition to how easy a product or service is to understand and incorporate into day-to-day living. What we haven’t dived too far into is whether this will be enough in the long term, which is what both sides are still trying to pay attention to and plan for today. The issue in a lot of cases with financial technology is that something will make a lot of noise, people will trust it, and then it fails because it hasn’t been time-tested. In this section, we’re going to diagnose whether the FinTech industry and banks can secure a long-term triumph.

What is the goal of FinTech?

FinTech companies want to be the banks of the future and make banking easier, less intimidating, engaging, and transparent. There have been many different attempts at this and adjustments made by brands to be unique in a cluttered market. Notice this difference first; traditional banking is what consumers associate with standing in line for a teller, going out to withdraw cash, or having meetings with advisors that are long and confusing. 

People associate FinTech with E-transfer, cryptocurrency, or Artificial Intelligence, which are what consumers believe in as the future. The young demographic specifically is a big promoter of this technology and is more likely to be influential in all directions. What’s next is to ask where the happy medium is and how both parties can meet there.

Let’s start by saying that technology in the past was meant to introduce everyday routines like communication and entertainment to the internet. Since that has been established, technology today is being built to automate, innovate, and produce products that keep people engaged and wanting more. This is the goal of not just financial technology but almost every innovation we’re seeing and have seen, to create a future that promotes sustainability and flexibility. 

What has it done for the job market?

Nowadays, working in IT is all hype due to the variety of roles someone can take on as well as the demand for talented individuals. Let’s also not forget the interest people have in office-home balance which is likely to be found when working in a technology company. Worldwide, the FinTech industry employs over 300,000 people; North America alone accounts for around 160,000 of them. The trend is rising which makes this a scary stat for commercial banks who still have the majority of workers for the time being. Soon, those categories of workers could merge under one umbrella.  

In the mind of a consumer in 2022, the line between banks and FinTech has become blurry and this is now why commercial banks are making an effort to build relationships with FinTech companies. Consider that this year alone the United States has seen north of 30,000 FinTech startups and the country's industry is worth almost $200 billion. It doesn’t take an expert to see that this is a growing consumer and job market, primed for the future. 

FinTech vs Commercial Banking

In the coming years, some experts are predicting that we can expect to see almost every financial services provider categorized under FinTech (and most already are). Now, this doesn’t mean the extinction of banks altogether, it just means banks are gradually taking on a form that’s viable for the future. Oh, and it’s worth mentioning that the ones who don’t embrace this change will be left in the dark down the road. 

Look at Visa, being around for over 60 years, the third biggest provider in the world, with almost half a trillion dollar valuation, and embracing the transition into FinTech. But what did Visa see in this industry to want to invest in it? Visa promotes partnerships between banks and FinTechs and wants to set an example. This move benefits them in numerous ways, most notably the fast-tracked ability for companies to integrate FinTech. No surprise then that this program has earned the name Visa Fast Track which is aimed to promote the global adoption of FinTech services, particularly for banking startups.

Banks approach

Many institutions have seen the rise of FinTech as a chance to compete and give some to get some. Unwilling to give up the power that easily, some banks want to be the parent of FinTech startups. In their efforts to reap these rewards, legacy banks have begun opening accounts for startups which leads us to the highly remunerative business model; Banking-as-a-Service (BaaS). Since legally registered startups need a bank account, BaaS wants to be their lender and effectively their ladder to establish credibility.

The way this works is that the FinTech (third party) will use APIs to connect to the bank's system which will then allow them to offer the same services as a bank to the end-user. For consumers, this makes the experience of using third-party services flawless and safe while also establishing rapport for the startup or entity.

What’s next?

So, what will the future look like for banks and FinTechs? The answer is simple: unpredictable. Nobody knows what circumstances will come within the next year, 5 years, or 10 years. One thing is for certain; banks and FinTechs need each other right now. Of course, there will be disruptions that force pivots, but for both sides, that is a bridge to cross when they get there.

Written By Ben Brown

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ISU Corp is an award-winning software development company, with over 17 years of experience in multiple industries, providing cost-effective custom software development, technology management, and IT outsourcing.

Our unique owners’ mindset reduces development costs and fast-tracks timelines. We help craft the specifications of your project based on your company's needs, to produce the best ROI. Find out why startups, all the way to fortune 500 companies like General Electric, Heinz, and many others have trusted us with their projects. Contact us here.