Focus on Fintech: Is It a Threat to the Traditional Banking System?

Julio Herrera Velutini
4 min readOct 19, 2021

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In days gone by, savers simply deposited funds into their savings account and sat back, watching their funds grow steadily over time. Fintechs swept through the banking sector like a tidal wave. They provided consumers with the features and amenities traditional banks lacked, rendering many traditional banking methods all but obsolete in a comparatively short span of time.

What Is Fintech?

Fintech delivers dynamic payment systems, leveraging the latest technology to provide transactional transparency. Fintech has created ripples right across the traditional banking landscape. It also caused the public to question the legitimacy of some of the exorbitant charges routinely imposed by brick-and-mortar banks.

Digital banking solutions have enabled customers to instantly complete transactions, day or night, wherever they are in the world. Technologies such as blockchain allow fintech companies to improve transaction transparency in payment systems, improving user interaction and experience.

How Is Fintech Affecting Banks?

With fintech companies increasingly gaining traction, traditional banks are rapidly coming to realize the importance of meeting rapidly evolving consumer requirements to regain customer loyalty. Fintechs have exploited opportunities to separate out individual components of the traditional banking system, providing targeted, effective solutions that better meet the needs of both consumers and businesses alike.

In terms of providing customer-orientated solutions, the difference in attitudes between fintechs and traditional banks is stark. More than 80 percent of respondents from fintech companies report that they are consumer-centric, compared with just 53 percent of respondents from the traditional banking sector. By providing customers with 24/7 access to a comprehensive suite of dynamic, innovative banking products and services, fintechs have created a power shift.

Banks once called the shots, setting their own terms and fees. For a long time, consumers had little choice but to tolerate the lack of technological innovation. The rise of fintech has been a staunch warning against complacency, forcing banks to evolve and become more competitive.

Some of the Most Successful Categories of Fintech

Mobile Payments

These enable anyone with a mobile device to make and take payments in seconds.

Crowdfunding Platforms

Programs like GoFundMe and Kickstarter allow users to send and receive money for causes important to them. Thanks to crowdfunding, today’s entrepreneurs have other funding alternatives than approaching a bank for a loan, enabling them to reach out to investors directly to acquire funding for their project or company.

Budgeting Apps

This category has become increasingly popular in recent years. Budgeting apps help people keep on top of their income and expenditures, identify areas where it might be prudent to cut back, and even cancel unused subscriptions.

Stock Trading Apps

These allow ordinary people to invest in the stock market, buying and selling stocks and shares through low-cost trading apps.

RoboAdvising

On the other end of the spectrum, RoboAdvising has changed the landscape of the asset management sector. It uses smart algorithm technology to provide customers with intuitive asset recommendations, managing portfolios with unprecedented efficiency and lowering costs in the process.

Is Fintech a Threat to Banks?

Many industry experts suggest that rather than being a threat to the banking sector, this new wave of financial technology actually presents considerable opportunities. Fintech is typically portrayed as a disruptive force that threatens to shake the banking industry to the core. However, forward-thinking financial institutions that jump onboard and invest in a comprehensive range of digital solutions, will likely not only remain competitive, but potentially pioneer a new banking ecosystem.

According to research from McKinsey, use of mobile banking channels increased by up to 50 percent in the first few months of the pandemic. To meet consumer demand for efficiency, speed, and a better user experience, banks must invest in developing their digital offerings.

After all, if Amazon enables users to purchase hundreds of thousands of products in seconds and delivers the order to their doorstep the very next day, why should consumers need to go a bank in person to open an account, apply for a loan, or complete a transaction?

Should Banks Compete with Fintech or Acquire It?

Fintech closes the gap between traditional banking solutions and evolving consumer expectations. Leading banks need to recognize the importance of keeping up with market requirements and develop their digital product range to remain relevant in a rapidly changing market.

Banks that do not wish to invest in developing their own digital product range can simply buy out a fintech company to do it for them. This does present challenges, however, since a fintech in its infancy phase may appear promising, but ultimately fail to deliver. Conversely, an established fintech may come with a strong pedigree, but cost an eye-watering sum to acquire.

Fintechs have addressed segments of the market often neglected by the traditional banking system. Industry experts predict that, going forward, collaboration between banks and fintechs could benefit both sides, reshaping the banking ecosystem to the ultimate advantage of the end user.

Fintech is the future of banking, with emerging technologies like machine learning drastically changing the way that traditional banks function. To meet the rapidly advancing technological needs of consumers, banks are embracing fintech in growing numbers. They are allocating considerable resources to the development of exciting, effective products to meet the evolving needs of customers in an increasingly digitized age.

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Julio Herrera Velutini
Julio Herrera Velutini

Written by Julio Herrera Velutini

Many companies investing in South American markets have tapped Velutini’s expertise for their boards.

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