FINTECH ERA
Written by Miodrag Džodžo (Country Manager at ABC TECH Group)
The key feature of the current fintech era is the focus on the end customer — the bank’s client. The secret of success is how much a complex organization such as a bank is ready to change and evolve. Although the instinct of banks is on the side of stability and maintaining a status quo, enhancements must be approached at some point and a certain risk of change must be taken. This is due to the fact that the certain alternative to change is the stagnation and or relative decline in relation to the market.
Banking has long ceased to be a business exclusively reserved for banks. We see examples in foreign exchange transactions, payment transactions in payment institutions, externalization of debt collection, and other dealings traditionally related to banks. In modern times, advanced regulation has enabled banking for all organizations that can provide efficient and digital services. Organizations that can draw conclusions from data and are able to use superior technologies to provide excellent customer-oriented services have an advantage in drawing the modern client. It is becoming less and less important for today’s clients whether they receive their banking services from banks or from someone else.
In essence, the field of financial services is opening up and changing the character from traditional to something new. Certainly, the key competencies of banks are in risk management, maintaining stability, safeguarding deposits, managing assets and liabilities, and, of course, providing quality products and services to customers. The goal of banks is also to maintain their own market position and to use their own quality and robustness to support the stability of the financial system as a whole.
For traditional banks in the world today, one of the challenges comes from full-offer fintech / neobank companies such as #N26, #Nubank, #Revolut, #Chime, and #Tinkoff. Each with its own models and with business focused on mobile platforms, its own agile technological systems, and with full banking licenses. For example, some percentage of new bank businesses operate on the basis of freemium and optional subscription model where customers can pay for additional services, or are rewarded for certain behavior (gamification integrated). In recent years, consumers have become accustomed to such advanced models — as for example, paying for music and video services such as Spotify and Netflix, which means that if they were provided with a similar level of customer service in the financial services industry, they would be willing to pay in such terms.
Certainly, neo banks and fintech are not expected to take the whole marketplace, i.e. to take over the role of the traditional banks, however, they do lead in changing the expectations of clients — which leads banks to the inevitable digitalization paths. An additional advantage for existing banks lies in the fact that pure fintech’s and neo banks are, to some degree and for now, oriented towards smaller transactions and shorter duration of business transactions. The response of the traditional banks was seen in the constant expansion of cooperation with new vendors and through the increase in the partners from the local digital ecosystems. They also look for local companies that can be their allies in the digital transformation, in new pilot projects, new products, and digital services, expansion of mobile and internet banking, credit process streamlining, use of new technologies, and practical application for the end-user of financial services.
Digitization is no longer a question of cost, but a question of market expectations (both for individuals and legal entities) for an excellent, fast, efficient service that is not laborious for the client, does not take too much time, and at the same time is cheaper. It sounds like a difficult task, but it is inevitable that those who adopt new technologies will constantly increase their expectations.
Fintech companies are, in a way, well prepared to deal with this powerful new change in reality. This was especially evident during the pandemic, which emerged as a global digital accelerator. Mobile banking has its advantages not only in comfort and mobility but also in the need to avoid crowds and physical presence — which can be viewed as an important “pain spot”. The majority of fintech is envisioned to be agile, with core technology in the cloud or ready for the cloud. They are organizationally light with a relatively mobile workforce that allows operations to take place anywhere (at home, coworking space …) and to quickly adjust to the demand of the client.
For traditional banks, that have previously strived for a digital transformation, efforts for modernization are now even more critical. Another important feature of this era is that technology is changing rapidly, new standards of blockchain, artificial intelligence, big data usage are also applied and used in new ways and finally affect financial services in a profound way. What was previously made to last, such as monolithic data centers, mainframe systems, projects that entail lengthy and costly interventions in IT hardware and software are seen as a blockage in the bank operation. In recent times banks require smooth continuous evolution, i.e. a series of minor upgrades at an ever-faster pace.
The most common adjustment strategies that banks today choose are: to postpone the change and wait for things to calm down; replace IT systems starting with CORE, buy fintech competition or evolve through a series of agile changes. Each of these strategies (or a combination of them) has its advantages and disadvantages, and it is up to the bank’s management to choose the most appropriate one for the circumstances in which the bank finds itself. However, for each strategy, the rule is that it is necessary to have broad cooperation with companies that are part of the local digital ecosystem, providers of modern technologies and services with IT development centers with specific knowledge and technology. Also, part of the digital ecosystem are consulting companies that use their advisory programs to help banks’ business models and practices adapt to the requirements of the digital age.
The conclusion is that a modern financial institution, such as a bank, must seek its place in the market through a focus on the customer, and in its openness to change and in a general agile approach, approaches through pilot projects, new product and service adjustments, which is basically expected to bring new constant evolution. Today, the competitive bank uses the latest technology alongside modern regulations to bring innovative products in order to achieve and maintain an advantage in the new fintech era.
About the author:
Miodrag Džodžo works in the Country manager position in the company ABC TECH Group, Luxembourg and covers the area of Serbia, Bulgaria, and Montenegro. He has spent most of his career in the banking sector in risk management, project management, and sustainability.
