2022’s FinTech battle will be infrastructure-focused

FinTechs has one major advantage in the market – flexibility. They were able to move quickly to develop and roll out new features before traditional banks. However, we are now seeing traditional banks introducing the same features.

In 2022, the winners will be those who have the infrastructure leverage to seize the new opportunities of the future.

The challenge for FinTechs is how to keep innovating, and they will lose some of their competitive advantage if they cannot maintain the same level of feature development as before. The challenge for traditional banks is that they took so long to get here – they couldn’t respond to the challenge once it happened.

But the game is not over for banks. There is a lot that traditional players in the financial world can and must learn from the latest financial technologies if they are to keep pace with changes in the market and ultimately maintain and grow their market shares.

So what will European banks need to rise to the fintech challenge?

Know what your customers want, not just what they need

While basic infrastructure has helped banks cope with the daily challenges in the face of the pandemic, many top teams will question what they could have done differently had there been better infrastructure in place.

Customers need new and different types of products more than ever. They needed protection from an increase in online fraud. Companies needed to change the way they operate and collect payments. In general, the banks were in a position to survive, not thrive, during the entry into the pandemic. This could cost them customer loyalty, and ultimately revenue if left unchanged.

The pandemic has exacerbated this change. Many of those who have been reluctant to bank online or use contactless payments instead of cash have found themselves with little choice but to do so since March 2020. While a small percentage of users may revert to their pre-pandemic habits, the majority will not that.

The success of rival banks has been driven by changing expectations for a new generation of end users. With increasing trust in the internet, digital-only offerings have been able to thrive. Ultimately, banks need to know how to satisfy the needs and desires of a younger, tech-savvy generation. This means providing technology-first products that younger generations want to use.

Play to your advantage

The advantage of FinTechs is that they are flexible, and they seem to be moving quickly to develop new features. The way traditional institutions do this is by offering similar degrees of flexibility in order to give options to customers who do not like the reduced digital banking experience but feel that traditional banks do not understand their needs either.

A traditional bank carries a certain amount of baggage with it, but most of it is good baggage – stability, security, and market knowledge – focusing these factors on customers would be a winning combination.

This is an area in which banks really excel. The data, customers, and capital to fund payments projects are already in place, while FinTechs have to build from the ground up.

The FinTech battle is far from over – it has just begun. Whether your strategy as a financial institution is to be proactive and aim to beat FinTechs at their own game, or whether you are reactive and want to move to second place, there is still plenty of time left around the clock.

Understand the global threat

Inertia is the biggest challenge facing the industry. Many financial institutions face a structural problem in how they react to change. Short-term safety often wins, but it builds a larger set of challenges that can lie later.

When bank technology fails, the first fallout is that it makes major news. The second is that the regulator intervenes. Combined, the bank may face fines, fees and a very bad reputation. The desire to avoid this scenario at all costs leads to many technical decisions being made in the financial field. Unfortunately in the long run, it’s more likely to create problems than it solves.

Furthermore, when you have a legacy payments system, you are restricting your ability to interact with the market and take advantage of the opportunity, and perhaps even defend yourself against the FinTech threat as well.

Banks that have been in operation for a hundred years or more have huge technical systems and processes in place. Compare that to the experience of Eastern European banks after the fall of the Soviet Union, and you have a market where decisions and implementations quickly outperformed their Western European counterparts.


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