According to surveys conducted by PwC in 2016 and in 2019, 42% of banks engaged in joint partnerships with fintech companies, and 94% of financial services companies said they were confident that fintech would help to grow their company’s revenue over the next two years.
These numbers demonstrate the rapid adoption of fintech in the banking and financial services industry, and how much growth partnerships have experienced over the last five years. But how have these unions remained relevant year after year and how will they continue to evolve during this era of digital transformation.
Partnerships between banking and fintech date back to the 1800s when signature-verifying technologies were first used by banks. In the late 1960s, the first ATM was deployed – a significant piece of financial technology developed to assist banks and transform customer service. Today, consumers have ready access to financial technology through mobile banking apps and more.
These joint innovations represent major advances for the industry, but there’s a common misperception now that banks and fintech companies can only be rivals. The aforementioned products helped to advance the industry and meet customer needs, so there’s room to consider the future of this union as mutually beneficial for all parties.
Customer needs today are vastly different than they were even five years ago because of the rapid adoption of consumer technology like smartphones and smart watches. And, as the adoption rate for these devices increases, the need for immediate, one-on-one access to financial services has increased as well. As a result, banks and credit unions should look to fintech as a means to provide more services, much like the industry has done in the past.
A radical digital transformation took place across industries last year, as the necessary shift to remote work created more opportunities to develop new products. This workplace pivot uncovered challenges and pain points that likely would not have been assessed and resolved if not for the pandemic. In fact, 88% of middle-market businesses, including banks, implemented new technologies within the last year.
As companies in various industries continue to adapt, banks and companies in the financial services sector should consider partnering with fintechs to improve three critical systems.
The use of artificial intelligence and machine-learning technology is on the rise, and banks should take advantage of this by using the technology to create “digital assistants” to field calls before they get to the call center. These AI-powered digital assistants help automate the first few touchpoints with the customer and determine how their requests are routed. This kind of process can help maximize efficiency for both the customer and the employee during the call, leading to better overall satisfaction and increased retention.
According to the Association of Finance Professionals, paper checks comprised 42% of all business-to-business payments in the U.S. in 2019. This means nearly half of all vendor payments required stamps, envelopes and trips to the post-office, pre-pandemic. During the pandemic, this manual, paper-based process turned out to be one of the biggest pain points as most employees shifted to remote work. As customers continue to shift to electronic invoice and payment options, banks should consider doing the same for their vendors and explore the opportunity to partner with a fintech in offering a payments automation platform to business clients.
As the world continues to evolve, so does the compliance landscape in the financial industry. Historically, small to mid-sized banks have been challenged to keep up with larger institutions because they don’t have the bandwidth to stay up to date with the frequent regulatory changes. But, by implementing a new technology that helps manage compliance processes, banks can alleviate some of the stress of having to consistently monitor for rules changes, and no longer go about navigating those shifts in silo.
Fintech should not be feared, as it’s been a major player in the banking and financial services industry for well more than a century. The union between banking and fintech will continue to be a driver of innovation in 2022 and beyond as both sides strive to grow and engage their customer base to drive more revenue.
Boyce Adams, Jr., is SVP of financial services at AvidXchange.