How traditional banks can compete with Fintech Disruptors

Over the past few decades, almost every industry has felt the impact of technology disruptors – and traditional banks are no exception. The introduction of fintech has revolutionized modern banking by offering efficiency, lower costs and more user-friendly services available to users via smartphones and computers.

In 2021, record levels of funding poured into the fintech space, creating a competitive threat to traditional banks as consumers begin to gravitate to digital banks in greater numbers. According to new research, the percentage of Gen Z, Millennial and Gen X consumers in the US who consider a digital bank to be their primary checking account provider has more than doubled; and the percentage of Gen Zers whose primary checking account is with a top-tier global bank has fallen from 35% in 2020 to 25% in 2022.

Traditional banks are now faced with having to adapt their products and services based on evolving digital consumer expectations. As more people rely on digital banks, how can traditional banks counter these competitive threats and better position themselves in today’s challenging and hyper-competitive market?

Expand digital offerings

To overcome fintech competition, traditional banks must embrace change and mobile banking. Traditional banks must rely on their expertise, knowledge, customer knowledge and resources to implement new technologies to keep pace with changing consumer expectations and remain competitive. Some ways they can do this include:

• Improve digital banking. Over the next decade, more and more banks will close some, if not all, of their traditional brick-and-mortar branches and divert resources to improve the customer experience through overhauled financial advisory services, greater personalization and more digital banking services. Digital banking allows consumers to make transactions and manage other banking activities online or via apps. Consumer expectations are evolving, and many are looking for tailored services and the most up-to-date offerings that provide real-time analytics and transactions. As such, traditional banks should ensure that their infrastructure is updated so that their customers can access their accounts in real time. But in addition, they should invest in UX (User Experience) and develop user-friendly apps and online account management. The front end is just as important as the back end. Going beyond offering an efficient and reliable service, to offering a banking experience is what banks should be aiming for.
• Lfocus on artificial intelligence. Artificial intelligence (AI) can help traditional banks improve the customer experience, leveraging data to anticipate their needs and offer tailored solutions, such as introducing wealth management services to the entire customer base. Adopting AI can help customers better, but also faster, at a time when their demands and expectations are rapidly changing. AI will also help reduce costs by increasing productivity and improving the pricing of banking services.
• Embracing the cloud. Cloud technology can transform traditional banks by evolving their current computer systems. Integrating cloud services allows traditional banks to better manage the vast amount of consumer data they handle, speed up data processing and improve the capabilities of legacy systems. Companies like Xero, a global cloud-based accounting software organization, have started rolling out features like bank reconciliation predictions, which use machine learning to reduce manual data entry and save time for businesses. Historically, traditional banks have been reluctant to move to the cloud due to data security and compliance concerns. However, to stay ahead and compete with fintech companies, traditional banks should consider working with an advisor to find the best route to migrate their systems or applications to the cloud.

Optimize the overall customer experience

Traditional banks must be forward-looking and decide what kind of competitive offerings fintech companies deploy to retain and recruit customers. Advances in technology and the Covid-19 pandemic accelerated changes in customer behavior and expectations. To successfully adapt to the times, traditional banks should focus on improving customer experiences to successfully match their needs and expectations. Here are a few recommendations:

• Buy now, pay later. Buy now pay later (BNPL) took off during the pandemic and has now become an attractive payment method for consumers looking for simplified financing without having to face high interest rates or credit scoring problems. Banks have the opportunity to become the go-to solution providers in this space, given recent data showing that 70% of current BNPL users would be interested in using BNPL plans from their banks if they were available. As such, traditional banks should explore what it takes to implement this service, to meet consumer expectations for reliable payment methods.
• Contactless payment. The pandemic caused customers to increasingly use online shopping and contactless payment. The development of Apple, Google and Samsung payments together with electronic wallets made the transition from cash and credit card payments to one-click and contactless payments. Banks are still a key player in the payment system’s infrastructure, given that banks are the largest issuers of debit and credit cards. By offering an efficient yet smart payment management tool that connects to the digitized credit card, the customer can manage their budget and wealth 360 degrees. In addition, linking the credit card to brokerage, investment and savings accounts and real-time financial advice will provide an improved customer experience that should be able to keep pace with innovative solutions.

For traditional banks to keep pace with changing customer needs and maintain a competitive edge against fintech disruptors, they should focus on investing in the right technology and improving the overall user experience. The traditional banks that are digitally agile, data-savvy and customer-centric are the ones that will survive and thrive.