Fintechs have become highly prominent over the years, with more emerging all the time. In fact the fintech sector is flourishing, the UK industry alone experienced record growth in 2018, with the global market expected to grow at an annual rate of 24.8% through to 2022.
The levels of innovation in this sector are exceptional, from highly specialised organisations and applications working in niche segments, through to major players developing applications and protocols which could transform the entire financial industry.
Issues facing banks
Fintechs, whether start-ups or international operations, are all digital-native organisations set up with the express purpose of developing and benefitting from digital technology – with agility, flexibility and scalability built in from the ground up.
By contrast, traditional banks with decades or even centuries-long pedigrees are in the unenviable position of trying to compete with these new agile players, whilst maintaining sprawling infrastructures built on legacy technology. This poses a number of issues for banks as they must update or completely replace systems with a fully digitalised core banking system if they are to keep up with the rate of innovation.
In the UK alone, statistics suggest that 12% of people have switched to digital-only banks, and a further two thirds plan to do so in the future. In other words, there is a limited time window in which traditional banks must act before the market really explodes.
Traditional banks are therefore left with a stark choice. They must either embrace emerging technologies and undertake the complex process of updating their legacy systems – or they can allow start-ups and challengers to continue taking customs from them, with their rapid customer on-boarding, intuitive and engaging digital experiences and the convenience of mobile banking apps.
How can banks keep up with emerging technologies?
Traditional banks do have a great many advantages on their side. They have enormous scale and brand recognition, an understanding of their market and customers, and a reputation that goes back generations. All this can be built upon by embracing technological advancements and digital transformation, enabling banks to deliver services with the agility customers want.
After a five to ten year period of early adopters, EY predicts the real adoption of digital only banking is starting now. Meaning, there’s a clear market opportunity in the UK for traditional banks to implement new technologies and prepare for an ever-evolving technical industry.