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Us Fintech Banks – As Bill Gates said, “Banking is needed, banks are not.” And it’s true. Digital financial technology aims to improve the lives of users, and the banking sector is already experiencing fintech disruption. Let’s see how it started and what banks can do.
At first glance, the largest banks control about $17 trillion in assets, making the $132 billion fintech industry seem like peanuts.
Us Fintech Banks
Consider that retail banks spend $30 billion a year on digital transformation, which isn’t all that impressive compared to fintech’s $132 billion.
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It goes without saying that fintech disruption is in full swing in the banking sector, and this trend is gaining momentum and penetrating all financial sectors. Traditional banks and financial sectors have seen very little change in the last 20 years. Bank managers are reluctant to accept changes and new technologies in the banking sector. Some may disagree that banks have come a long way over the years, but in reality, all reforms have been for the benefit of bank profits, not customers.
Online banking services have reduced the need for regular visits to bank branches. It changed the way we think about banking, but not the banking model itself.
Online banking might not have happened if accountants had not realized that the cost of maintaining an online banking system is much lower than the cost of branches.
Going online was a strategic and profitable move for banks. Unfortunately, just because you’re online doesn’t mean you’ll succeed. On the other hand, Fintech protects customers better than any bank with an appropriate and effective online strategy.
Fintech Market Size, Share, Trends & Growth Report, 2032
First, the fintech disintegration of the banking sector began during the most recent financial crisis in 2008. Former financial sector employees who lost their jobs refused to leave the financial sector. They teamed up with IT professionals and started building fintech startups that solved people’s problems rather than banking problems.
As a result of the economic crisis, trust in traditional banks was damaged, everyone wanted to save and manage their money. This was a huge opportunity for the digital industry, and new user-centric financial services began to flourish.
Second, we live in a digital age that has opened countless opportunities for the financial sector. If you look at the most valuable brands of 2022, you’ll see five tech giants. The digital age requires a completely new approach and mindset – one that is 100% user-centric.
Mobile banking services remove barriers to market entry and create demand for financial services regardless of location. According to a study by Business Insider Intelligence, 89% of customers today use mobile banking, and fintech banking services allow customers to compete with the “big” banks.
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The banking fintech disruption has brought us better financial management tools, mobile payments, crowdfunding, quick loans, peer-to-peer lending and even insurance technology solutions (insurance technology). They did this by bringing together brilliant minds who understood the importance of design thinking and building services in an environment where banks were struggling. Fintech innovators understand that consumers face real struggles when it comes to banking.
Fintech startups understand that segmenting banking services and mastering at least one will bring them recognition and maximum customer satisfaction. This is where banks fail in their online services. Compared to fintech and insurtech friendly user interface design, a lot of it is complicated and extremely confusing. Some Fintechs and Insurtechs have a design vision that traditional financial institutions lack, and that vision is about a pleasant user experience.
The App Quality Index ranks nearly 6,500 financial apps on Google Play and the Apple App Store by industry, including US peers. According to customer reviews
Fintech and Insurtech owners see digital services through the eyes of consumers. They love everything about customers and love making products that they want to use themselves. Banks, on the other hand, focus on better loans, fees and branches, but users value convenience, accessibility and convenience. This is how crowdfunding and payday loans became so popular. It’s easier to start a Kickstarter campaign and get the funding for production than it is to go to a bank branch and ask for a loan. The same scenario is happening with the digital-only neobanks that have acquired millions of customers in recent years.
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More and more customers are choosing fintech products, and banks are losing customers. This is because such banks think that they already have well-built products, so why should they change anything?
The same has happened with payday loans, personal finance management tools and insurtech services. Almost all online banking services have personal finance management tools, but have you discovered or tried them? Probably because you didn’t even know they existed, and even if you tried to use them, you’d probably be put off by their complexity. Then there’s Mint’s success story of how perfect fintech design helped create a personal finance management tool. Fudino simply, beautifully and pleasantly does just what is needed.
We only have to open the App Store to see how digital customers compare to brick-and-mortar banks and digital-only banks.
In recent years, we have witnessed a revolutionary change in the activities of bank users. According to the Citi Mobile Banking Study, 91 percent of users prefer mobile banking to visiting a branch. Capgemini research shows that 68% of consumers say they are using a checking or savings account from a challenger bank now or in the next three years. The top three reasons for switching to fintech services are lower cost (70% of respondents), ease of use (68%) and faster service (54%).
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All of the above statistics show that fintech design and UX (User Experience) are contributing to the disruption of traditional banking. If we compare the monthly user activity (MUA) of the top banking and fintech apps, we can see drastic changes between 2016 and 2019. According to App Annie, it only took three years for fintech to reach the same multi-billion dollar level. banks
Banks may be difficult for some customers, but life would be brutal without them. Banks will not go bankrupt or go out of business, but almost everyone agrees that change must be embraced. Most established banks already have a platform to provide new services – the challenge is to implement customer experience design in banking services.
According to the McKinsey Global Banking Annual Review 2022, there is a 70% valuation gap between banking and other sectors. And while only half of the valuation gap reflects the low profitability of the banking sector, the other half reflects the expected lack of future growth, as indicated by the banks’ low P/E ratios. Banks have a P/E of around 13, compared to an average of 20 for the rest of the sector – and the discount is increasing. Banks lack a systematic growth perspective for the sector as a whole, leading investors to undervalue the sector, which lacks the growth premium seen in other industries.
Only long-term value-creating banks (North Stars) perform well in terms of current and future growth. Their high P/E indicates high expectations for long-term growth, while a high price-to-book (P/B) ratio indicates short-term risk-adjusted profitability. These banks are relatively rare: only 15 percent of banks worldwide qualify as North Stars. Their value is two to five times higher than others.
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In a survey conducted by Finextra and Virtusa involving more than 100 North American, European and Asia-Pacific banking executives, 79% of respondents identified the transition from a product-centric mindset to a more customer-centric approach as a top priority.
The digital development of the customer experience challenges traditional banking operating models and cultures. It requires a customer-centric approach to providing financial services that customers welcome using banking technology.
The expectations of today’s digital consumers are higher than ever. To succeed, financial firms must be more innovative in acquiring and retaining customers through highly relevant and personalized experiences across channels. One of the best ways to do this is to integrate design thinking not only into the processes, but also into the culture of the organization.
Fintech specialization enables better customer orientation and increases customer value and company valuation. McKinsey’s analysis shows that high-value market players and fintech are, surprisingly, operating in banking products that generate profits, including deposits, payments and consumer finance. This was also true after the 2022 market correction, which did not change the order or magnitude of the difference either.
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New financial technologies are giving consumers the freedom to change financial services faster than ever before, and this will only accelerate with the Open Banking initiative. It is up to the banks themselves to make more services available and ultimately put customers at the heart of what they do. Having the best user-centric online services is a positive step towards achieving this goal.
We are increasingly seeing traditional financial companies such as banks partnering with fintech and insurtech companies and integrating them into their own ecosystems. This is an excellent approach to drive innovation and implement fintech and insurtech UX.
