Around ten years ago, a typical consumer only had minimal financial relationships and would only interact with a few institutions to address whatever they need financially. However, fintech companies are starting to break boundaries as they try to focus on more specific aspects which banks are already doing but doing them in a much better way. Due to this, most consumers now establish several financial relationships, with each having a definite purpose.
After the financial crisis back in 2008, the so-called fintech revolution began, which was a result of too much frustration with the current establishment. As banks faced intense scrutiny, they dramatically withdrew from various activities to eliminate risk, and this left a significant impact.
Fintech companies eventually came into the picture and introduced new ideas to such industry, which greatly lacked innovation. However, since the economy rebounded, banks are back to recapture the gap that they lost.
The more established banks directed their attention to copying the most lucrative offerings provided by the different fintech companies. They moved slowly, lagged for approximately five years, but their objective is to provide a passable mobile experience to make sure that their clients remain loyal.
Banks are aware that they don’t necessarily need to compete and be much better than fintech companies. Their advantages in terms of scale, as well as distribution, ensure that they will be able to sustain enough customer base provided that they have sufficient products.
The banks’ advantages hinder fintech companies in being able to fully compete with the banks. If for instance, a certain bank would want to pursue a particular business, it can easily dominate any fintech company anytime given its relatively lower cost needed as funds and can quickly pay for each customer.
Such circumstances can make people very pessimistic towards fintech companies, whose central wedge is to serve a market which is not catered to by banks. Most of these companies end up unable to increase long-term growth since other establishments will only copy them.
When fintech companies think about remaining relevant, one long-term strategy is driven by automation.
Approximately 20 years from now, automation will transform our way of life. Some intelligent service will create, and be able to execute afterward, a majority of any financial decision that an individual has to make.
This service will also be able to work together with the human in understanding their objectives, like when they would like to retire. Other goals may include to which college or university do these people plan to enroll their children in the future.
Just imagine this scenario wherein you port your entire financial profile wherever you want. By just clicking a button, all your accounts are moved quickly, similar to porting your phone number.
In the mobile phone industry, for instance, it was a challenge for companies to prevent porting the numbers as not allowing such was able to create stickiness, which lessened the willingness of people to transfer to a different carrier. This circumstance, in turn, allowed them to charge premium prices.
Back in 2003, prices of mobile phone plans were lower than usual because, at that time, the government made the industry accept the porting the phone numbers. As they eradicated the friction, excess profits disappeared.
Blockchain ultimately reduces friction since it permits optimizations to occur. Through it, optimizations also take place with minimal marginal cost. As automation requires less human involvement, customers always achieve their preferred financial situation.
For banks, automation can be considered a nightmare scenario. As soon as it reduces friction in the industry, banks may eventually lose the relationships they’ve established with customers.
They may be perceived as a utility, which provides pipes or wires which allows people to store money and also move from one place to another. Blockchain allows customers and banks to easily track all transactions and the movement of cash between any and all accounts. Then fintech companies will swoop in to utilize their expertise in data to help people decide and help them execute whatever they choose.
The ultimate result could be an intelligent service capable of figuring out everything that the customer needs and will act on them on their behalf.
Automation’s strength is beyond the ability of the intelligent service to decide on what’s best, as well as take immediate action for the customer. With the ability to lessen friction, automation allows for more competitive markets. Such actions can also make additional wealth for customers as they get matched with the most appropriate product available within the marketplace.
Fintech companies need to figure out how weaving intelligent automation to product or user experience, product development or manufacturing process is essential to their success as well as for the company’s growth. Those companies who fail to acknowledge the evolving technological landscape are running towards their loss on market share and even their position within the space.