FinTech Evolution: How Has Banking Adapted to the Digital Era?

“Why can fifteen people who are highly-skilled and highly-motivated do a better job at delivering capability than potentially five-thousand IT people in a big banking organisation?”

These are the words of fintech commentator, David Brear. As the CEO of 11:FS, David is fascinated by the digital world of banking and how financial institutions of all shapes and sizes can embrace technology to improve customer experiences.

His observation about the growing influence of small FinTechs has got me thinking about the evolution of banking through the ages and how financial services brands can position themselves to find their way in an increasingly complex landscape.

David’s video on the ‘Banking Battlefield’ explains how the evolution of financial institutions alongside technological innovation has fundamentally warped the power dynamics between large banks, tier 2 banks, startups, FinTechs, and even big tech companies.

 The Evolution of Financial Services

David explains how the financial services have undergone three radical transformations over the past few decades.

1. Analogue. In the days before the Internet and powerful computers, the majority of financial services involved analogue processes that relied on physical paperwork, in-branch appointments, and postal updates. Ever since the formation of the Bank of England in 1694, analogue processes have shaped the majority of today’s financial landscape.
2. Digitised. The last two decades have been dominated by the digitisation of analogue processes. Whether it’s sending electronic bank statements to replace physical letters or creating digitised archives to store the growing volume of customer data, almost all big banks have undergone a long and resource-intensive digital transformation to modernise outdated processes.
3. Digital. The future of financial services lies in entirely digital experiences. While cutting-edge FinTechs are driving the banking sector into the 21st century, we’re yet to scrape the surface of how digital technologies can revolutionise customer experiences and reinvent the way we manage our money. (Psst, skip to the end for our video explainer on the next evolutionary steps of digital payments). 

Just as the music industry has evolved from physical CDs to downloading songs onto MP3 players, to streaming millions of songs through Spotify, the financial services are experiencing a similar transformation.

I believe the key differentiating factor between financial service providers that flourish in the next five years and those that well don’t will be whether or not they can bridge the void between digitised banking and truly digital experiences.

Number of Customers vs. Customer Experience

David identified an interesting shift in the way financial institutions model growth in the digital age. While large banks and tier 2 banks traditionally measured success against the number of customers on their books, the rise of lean and agile FinTechs has thrown a spanner in the works.

While the Monzos and Revoluts of this world may have relatively few customers compared to banking giants, their ability to chip away at the market and offer unprecedented customer experiences through rapid innovation is raising eyebrows across the industry.

Established institutions find themselves at a difficult crossroads. Do they invest millions (possibly billions) into resource-intensive digital transformations, do they create ring-fenced teams to simulate the agility of smaller FinTechs, or do they partner with massive tech companies or a series of specialist FinTechs?

Benefits of Building From the Ground-Up

One of the biggest advantages of entering the market as a stand-alone FinTech is the ability to embrace digital processes and technologies from day one. While incumbent banks are burdened with established processes, demanding customer base, and regulatory minefield, fresh-faced FinTechs have the freedom to build digital banking into their company DNA.

For example, anxieties around the adoption of cloud-based technologies for the big banks weren’t shared by digital natives who could optimise their systems to embrace cloud computing from the ground-up.

Working in a high-paced fintech environment, I have first-hand experience of how native organisations can adopt the latest technologies to leapfrog the big players and get ahead of the competition.

From a marketing perspective, having the technical capacity to embrace new technologies and offer customers cutting-edge functionality provides a honeypot of opportunities to connect with customers and promote your brand.

While many big banks are clutching at straws by shouting about minor improvements to their online banking services, new entrants are flipping the entire industry on its head entirely.

Now that is something worth talking about.

It All Comes Down to the Product

Ultimately, the biggest difference between traditional financial service providers and emerging startups is exactly as we’ve said above - the product. FinTechs have the luxury of forging a fresh and highly-relevant product stack that reflects the needs of today.

FinTechs are able to navigate and traverse market conditions at will and pivot business models and services quickly to satisfy customer demand. 

So long as banks have the cultural hangover of hundreds of years of tradition and analogue processes, their product set will always be reactive, relying on their customer stickiness and domination of traditional financial services like mortgages and merchant acquiring services.

To quote David, “Embracing the future of digital finance is about fundamentally changing the way change happens in your organisation.”

Innovation isn’t a choice in today’s digital battlefield. It’s the pivotal frontline.

As David explains, the established tier 2 and 3 banks have historically sought to emulate the functionality and business models of established incumbents. What they should do is think differently about their operations and seize the opportunity to work with new technology partners and not start their perilous builds from scratch.

Why build technology that might take years to properly integrate when you could outsource to a company like Modulr who has the latest technology now, and will continue to update its technology stacks as and when innovations pop up?

Embrace the Future of Payments with Modulr

Want to read more about my life as a CMO and stay up-to-date with the latest developments in the world of FinTech marketing? Check out the Modulr blog to catch our expert insights.