While many eyes in finance are fixated on the unpredictable changes of Bitcoin and its fellow alt coin price fluctuations, JPMorgan strategists insist this story is only “an economic sideshow.” We should instead be looking at the “rise in digital finance” which, to the strategists, led by Chair of Global Research Joyce Chang, is the real post Covid-19 story. Last year saw fintechs rise to dominate the market share. While banks have tried to keep up, their antiquated methods have failed to be as agile.
The favored adoption of fintech comes as little surprise. Pre-pandemic, a 2019 MuleSoft study revealed that they found that the services provided by traditional financial institutions were ‘disconnected’ mainly because of the lack of tech channels integrated into the service. Influenced by what they often experienced as seamless experiences online, their expectation of banking was to be the same - one that offered speed, flexibility, streamlined processes, and a strong user-experience. Fintechs have performed well by filling this gap for such users, by creating specific services and elevating them for top user experience and simplicity to keep up with the demands of the time. The untapped technological innovations of fintechs also outpace the speed of banks who are bound by traditional and rigid processes that are difficult to dismantle.
However, while fintechs have experienced enormous growth, they are not the end-all-be-all of financial solutions as they tend to focus on a specific service, while banks provide more of a full-service experience. Fintechs largely fill a niche requirement and focus on doing that really well, but this leaves users relying on multiple different fintechs, having whole app folders to organize them on their devices. Fintechs may also be unable to provide the level of personal service, one-to-one interaction, and trust that a traditional bank commands.
While fintechs have managed to jump ahead and take the lead with unregulated technological innovation to find services and digitize them for customers, banks are catching up slowly but surely. And, when they do, they will have a greater history of services, trust, and know-how for providing integral services to established customers who prefer to access everything in a one-stop-shop format with a trusted name. If traditional banks can create face-to-face interaction with clients to establish relationships but continue streamlined services online, they will have a competitive edge over fintechs who offer limited touchpoints and communication pathways for users.
The pandemic may have given fintechs a boost to race ahead of traditional banks to innovate their way into consumer’s pockets, but the real test will be played out over time. It’s likely, if banks are able to shift their rigid formats to digitize more services, they will outperform fintechs due to the extent of their experience and capabilities. Trust is a huge factor in personal finance, and this is where banks far exceed fintechs. Fintechs may also be facing heavier and more complex regulations, which banks have largely mastered.
In an ideal future, we would see fintechs and banks increasingly work together to share technology and know-how to create more encompassing and efficient services for mutual users—but for now, the financial technology arms race continues