Opinions were divided on the relationship between fintech projects and the banking sector. Some say that financial and technical startups pose a serious threat to classic banks. Others are convinced that such innovative enterprises are futile since the credibility of them has seriously fallen. In fact, fintech projects and large financial institutions have different target audiences. They are not competitors, but potential partners. The balance of power in the banking sector can be changed, but at this stage, they are more interested in non-financial services.
Strengths and weaknesses of banks
The main trump card of classical banks is the historical context. The bank card, familiar to many, today still retains its leadership position, despite the fact that a large number of alternative payment methods have already appeared. In 2012, many predicted a significant drop in the popularity of “plastic” until 2018. These predictions did not come true, although there is practically no doubt that alternative payment methods will soon take over. While a bank card remains a habit for most customers, habits tend to change.
Realizing that customer interests are gradually changing, banks are trying to meet new standards. However, a large financial institution is a large structure that is difficult to change dramatically. Banks create innovative laboratories, especially for such purposes. Despite the invested funds and efforts, they have not yet demonstrated the results that are expected of them. Perhaps in the future, everything will change for the better. Much more significant progress in this regard is demonstrated by projects that are outside the banking system.
Many fintech, realizing the difficulty of competing with large banks, significantly reduce prices for their services. This strategy seems to them to be successful in the long run, but this is a false idea. The financial services industry does not tolerate dumping. The life cycle of projects using this strategy is usually the same: budget cuts, lack of money for development, annual portfolio growth at the level of 10%.
The bottom line is clear: failure.
The chances of success are for startups that do not resort to downright price cuts. However, setting market value is, of course, not a panacea.
Thus, there is only one way out: to set market prices, explaining to the client what exactly he pays for and why exactly so much, and not less.
How the competition will end
Fintechs are gaining momentum and, accordingly, are attracting more and more attention. The number of startups on the market will continue to grow. Obviously, the number of failed projects will increase.
Prospects for banks are less bright: there will be fewer of them, only a couple of hundred will remain. Only ten to twenty will be meaningful to the financial system. The rest of the banks will turn into pocket ones, that is, they will work for a city or enterprise.
The target audience of fintech projects will still be clients who are ready to spend more money on individual high-quality solutions.