There are currently about c2,500 fintech startups in the UK, all of which fall into 8 broad categories: banking, RegTech, InsurTech, lending, payments, WealthTech, quote aggregators and accounting, auditing, and cashflow management.
London specifically has been declared as the world’s highest concentration of financial and professional service firms, undoubtedly attracting investors. In 2020, $4.1 bn, 94% of the UK’s FinTech venture capital, was in London.
Last month The Daily Mail published an article displaying how fintech is stacking up against long-established banks, noting that they are “snapping at the heels” of their rivals.
The article further pointed out that:
- The annual cost of operating a customer’s account at a traditional bank can range anywhere from £150- £200. However, at Starling, a newer challenger bank that utilizes a banking-as-a-service model and a proprietary technology platform with cloud-based systems, the cost is a mere £57.
- Wise, a fintech money transfer group that allows customers to bypass traditional banks, shares have risen from 800p to 981p.
- And challenger banks are anticipated to break into the mortgage business.
- The sheer number and rapid growth of fintech startups emerging have left many wondering if the financial market will remain captivated by large, well-known competitors from the likes of J.P. Morgan and Goldman Sachs or if fintech will dominate the future of banking.
The organizational structure of Fintechs alone provides considerable advantages when competing against the old-school banking world.
Such start-ups generally embody a flatter organizational structure. This gives teams the ability to pivot and iterate faster in addition to easier adoption of new technologies. This ultimately ensures their relevance as technology trends and user expectations continue to change.
Fintechs are also able to fill specific gaps in the market that have been left open by slow-moving, traditional banking changes.
They leverage technology to meet niche financial needs of customers, delivering premium mobile experiences, greater accessibility, contextuality, and convenience that traditional banks can’t offer (largely due to their need to cater to a larger audience and the role they play in risk management within the banking system).
The greater personalization, user experience, and innovations offered by fintech have shaped customers’ preferences towards mobile banking and personalized financial services.
Fintech also has a significant advantage in areas with increased mobile phone connectivity in comparison to the physical locations of banks. According to Analytics India Magazine, the market distribution of fintech is greater in India as mobile phone penetration is 80% as opposed to banks which can serve only 35% of consumers.
Despite the seemingly distressful outlook for traditional banks when competing against fintech, the banking veterans still have many advantages over new market entrants.
Banks are highly regulated and provide broad-based, stable, trustworthy services under a resilient business model.
They remain relevant as they provide stability, economic growth, strong customer bases, and vast experience in a highly regulated ecosystem.
Their extensive industry expertise affords banks access to information and know-how that fintech’s simply don’t have. Based on that knowledge, banks can make more efficient and effective choices when they do apply new solutions.
Banks have significant potential as they have become more open to discovering the capabilities of data analytics, AI, and machine learning. The utilization of their current access to large amounts of customer data is highly promising.
Rather than a winner takes it all scenario, what is more likely, is newfound partnerships between traditional banks and fintech. When internal innovation is not the right path, banks have the influence and capital to partner with or even acquire fintech startups to enhance their product offerings, solutions, and reach.
BNP Paribas, HSBC, UBS, and Deutsche Bank have already invested in fintech startups that offer solutions including personal finance, wealth management, lending, payments, settlement blockchain, data analytics, and other regulatory technology.
Additionally, several financial institutions such as Barclays, Citibank, and Goldman Sachs have developed accelerator programs to help advance fintech startups.
Partnerships that bring innovative solutions at the right price point and convenience to consumers will only enhance the traditional banking system that is here to stay.
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