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Fintech advancement continues to gain momentum as the need for innovative and modernized financial services becomes more desired. The global fintech market revenue stood at $134 billion in 2022, and the expectation is that by 2030 it will reach $556 billion.
Meanwhile, in the face of this transformation, traditional banks find themselves confronted by a choice: evolve to match this innovation or stay the same and lose market share. Nimble fintech startups have rapidly reshaped the financial landscape, challenging traditional banking models and redefining the dynamics of customer interactions. Citi Groups recent survey showed that almost 90% of traditional financial institutions expect to lose 5-10% of their market share to fintech companies within the next few years.
Innovative solutions that cater to the modern consumer's demands for speed, accessibility, and personalization have disrupted the long-established norms. In this article, I would like to delve into the transformative impact that fintech has had on traditional banks so far, and how the relationship between them will develop going forward.Neobanks vs Classic Banks: Modern Take on David and Goliath
Neobanks are undeniably the aspect of financial innovations that impacted traditional banks the hardest in recent years. Their impact forced banks to reassess their operational paradigms and become more flexible. The convenience afforded by neobanks has set new standards for customer experience, and traditional players had to follow this shift with some degree of success. As an example, instead of visiting branches in person and standing in long queues, it became possible to do most operations in one click through mobile devices.
Of course, not all classic banks were able to adapt and remake their processes to suit this change. Stalwart institutions like Barclays and HSBC persist in their traditional models, and, notably, didnt go anywhere despite the fiercely growing competition. But at the same time, if you look at the likes of Revolut or Monzo, it is clear that working with them has an allure that most traditional banks would struggle to match.
An argument can be made that banks need to more actively respond to the changes in this market. They understand that these new entrants are changing the market, and the younger generation is more comfortable and interested in working with them. That clients need to be provided with additional services, such as trading, investments and savings if banks wish to retain their interest in the long term.
Yet, many banks dont seem to be in a hurry to adapt to these new requirements. Lets take a closer look at this.What Could Banks Stand to Change About Their Operations and Why Dont They?
In many ways, classic banks leave an impression that their approach is not very client-centric. It is not rare in this sector to hear grievances about sluggish services, a lack of responsiveness to inquiries and an overall air of nonchalance toward client needs.
The traditional banking model, rooted in old-style practices, can often manifest in a lot of bureaucracy and inflexibility, leading to frustrations among customers who seek efficiency and personalized attention.
In contrast, neobanks have capitalized on the growing demand for more agile and responsive financial services, positioning themselves as alternatives that prioritize swift, customer-friendly solutions.Loading… Loading…
Nevertheless, I find myself thinking that people are unlikely to ever fully leave traditional banks despite this paradigm shift. The reason for this is that banks have a reputation that was built up over the course of centuries. There is a prevalent perception that banks are something monumental and unshakeable. People believe that they can store fortunes with them, and nothing will happen to their money.
This is, of course, untrue. The collapse of three American banks back in March 2023 is a good example of how anything can happen, and that there are never any ironclad guarantees in the financial markets. Yet, public opinion is not easily changed. And so, banks these days persist as a kind of preservation mechanism. People go to them when they want to keep their funds safe without doing anything else with them.
On the other hand, neobanks are what people turn to when they want to get additional value out of their money. Be it through trading, savings programs or something else. These platforms offer a greater variety of services which is attractive. But at the same time, they do not have the same history and credit of trust behind them. Which means that customers often keep relatively small sums in their neobank wallets funds that they intend to spend quickly or can afford to lose if something bad happens.
In this, we see how classic banks and neobanks have come to occupy two distinctive niches, playing to their respective strengths and images.Bottom Line: Set Competition Aside, Work With Clientele That Trusts You
The global financial landscape now has two distinct archetypes in traditional banks and neobanks, each carving its own unique identity and catering to specific consumer needs. Rather than pushing for a complete overhaul and having one model fully replace another, I believe that traditional banks and neobanks can find success by accentuating their inherent strengths and staying true to their established images.
This approach acknowledges the fundamental differences between these entities and recognizes that attempting a complete transformation is unlikely to work. Traditional banks, with their longstanding history and reputation, often prioritize stability and a more comprehensive suite of financial services. On the other hand, neobanks thrive on agility, innovation, and seamless, tech-driven customer experiences. Striking a balance between maintaining tradition and embracing innovation would allow traditional banks to coexist while leveraging the trust and clientele they established in their respective domains.
This article is from an external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.Loading… Loading…
