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Just like print media publications, legacy banks are now feeling the heat of disruption from their target audience moving online, and being wooed by technologically agile startups. But unlike people who fondly remember reading the print newspaper on Sundays, or awaiting the paperboy to pass on his bike, the disappearance of banking as we know it is unlikely to evoke much nostalgia from consumers in times to come.
With the Great Recession still a recent memory, and the world’s leading banks like Wells Fargo publically being fined for tricking users out of millions of dollars in fees, consumers are welcoming the winds of change. With nearly 70% of Millennials now engaging with their finances entirely online, quickly adopting new Fintech apps and moving towards challenger banks, traditional banks are left with three options: Innovate, acquire or die.
But the nails aren’t in big banks’ coffins just yet. If banks learn from new players, Fintech innovation could help not only save traditional banking, but also revamp it and transform it into something more efficient and attractive to younger audiences. However, if they continue alone, they will be regulated to the history books.
Here are three Fintech predictions:
1. Financial Institutions will acquire more Fintech startups
Banks are large lumbering global organizations by nature, held back by legacy systems and rigid hierarchies. And they’re not especially known for their innovative spirit. Ron Shevlin, Director of Research at Cornerstone Advisors argues that to push widespread change in an industry that has barely changed in centuries, three elements are required: technology change, demographic change, and economic imperative.
Shevlin says that while the emergence of internet technologies and then the advancement of mobile technologies provided the technological shift needed to motivate widespread change, it has only been in the last few years that Millennials growing power in the economy has provided enough demographic change — and thus an economic incentive — to shake banks into action and force modernization at the risk being made redundant.
If banks — which are already notoriously slow at innovation — tried to compete with Fintech companies on each of their individual functions (transfers, loans, money management, stocks and shares etc) they would be dead in the water within a decade. But while banks may be slow off the mark technologically, they do have one thing up their sleeves – and that’s a lot of money.
A new study by IDC and SAP shows 34% of banks would collaborate with a startup, and 25% would prefer to acquire. Leading the charge is BBVA, which recently acquired banking startup Holvi, payments startup Openpay and bought US online bank Simple. But American banks are getting into the action too. Over the last year, Goldman Sachs bought Honest Dollar, an online retirement planning service, Ally Financial bought online brokerage TradeKing Group and BlackRock acquired online investment firm FutureAdvisor.
Banks are realizing it is much easier to buy ready-made technology to integrate into their systems, and startups — which are struggling to raise funding due to Go to the full article.
Source:: Business 2 Community