Fintech Firms Attacking All Facets of Banking

A report from McKinsey argues that there are seven critical aspects of the new financial services environment that must be understood by traditional banking and fintech firms.

By Jim Marous, Co-Publisher of The Financial Brand and Publisher of the Digital Banking Report

For the past decade, new fintech providers have focused on providing an enhanced consumer experience around a rather narrow set of financial products and services. This has impacted traditional banking organizational planning, innovation and even investments in technology.

As the banking and fintech industries begin to merge through consolidation and collaboration, the focus will move beyond simply providing better payment, lending, money transfer and digital engagement experiences, extending to the entire financial services ecosystem according to a report from McKinsey. These changes will be supported by new regulations, demands from increasingly digital consumers, and a new “patformification” perspective as introduced by Ron Shevlin.

According to McKinsey, there are seven critical aspects of the new financial services environment that must be understood by both traditional and new financial services providers.

1. Expanded Scope

Moving well beyond payments, lending, and P2P transfers, fintech offerings now reach more than 30 areas throughout the entire banking value chain according to the report. Offerings now include all areas of financial services including the following:

• Retail (money management, P2P lending, digital lending)
• Wealth Management (robo-advising, crowdfunding, social investing)
• Insurance (IoT and connected devices, telematics, digital prevention)
• Capital Markets (collateral management, trade analytics)
• Small- and midsize enterprises  (digital cash management, P2P corporate lending and investment)
• Payments (mobile payments, mobile POS devices, payment processing)

The above expansion does not even include the extensive expansion being realized in both operations and infrastructure where some of the most dramatic innovation is occurring. In addition to advancements in blockchain and open APIs,much is being done with advanced analytics, artificial intelligence and cybersecurity.

It is noted that fintech firms are even providing advanced advisory and support services. An example is Social Finance (SoFi), which has gone beyond offering just lending products to students and young professionals, expanding to provide career coaching, high touch customer service and networking events.

2. Increased Diversification

“The fintech industry is also becoming more diversified, with a wide variety of business models seen across geographies, segments, and technologies,” states the report. This includes venture capital funded start-ups that address a specific consumer need (Stripe), large tech firms expanding into financial services (Alibaba/Alipay), and established fintech firms expanding offerings (PayPal).

There are also dozens of examples of existing financial services firms creating their own fintech unit. This includes divisions to provide new services as well as completely newly branded banking entities.

“With no signs of the fintech industry’s growth abating, its reach is likely to broaden quickly to embrace even newer technologies and offerings, blurring the boundaries now delineating financial services,” the report’s authors said.

3. Improved Collaboration

The benefits of collaboration between banking and fintech providers has been thoroughly explored by The Financial Brand. While fintech firms do not have the burden of dated infrastructure and have the benefits of innovation agility and focus, they usually lack an understanding of regulations and have difficulty achieving scale. Alternatively, legacy banking organizations have the benefits of trust, an established customer base, massive reservoirs of data, but usually lack digital expertise.

Examples of such partnerships are widespread. For example, New York–based Moven and Canada’s TD Bank have partnered to integrate Moven’s mobile financial-management tools with TD’s Internet-banking platform in Canada. Similarly, BBVA has funded and partnered with a number of fintech providers to expand service offerings ...

To read the rest of the article regarding the how fintech is changing all facets of banking, go to the complete article here ...

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Read More on This Subject:

• Banking and Fintech: An Uncommon Partnership
• Fintech and Banking Partnerships Require Strategic Understanding
• Banking vs. Fintech: A Business Case for ‘Coopetition’
• Fintech Start-Ups: Threat or Innovation Partners?
• Fintech Growth Poised to Disrupt Banking Industry

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