Banks are aware of the threats that loom over them if they do not update according to the latest market trends. For that reason many are already exploring new technologies with more nimble and flexible companies: fintech startups. Let’s see which are the keys that can help them in the transition.
Co-founder, CTO of Coinscrap Finance and SenseiZero
Process automation allows you to focus on what really matters
Although financial institutions have always adopted technologies that streamline processes, there are new tools available to perform tasks that previously required the review of one or several people. This is the case of approving loans, preparing scores or validating the power of attorney, among others.
The industry is paying greater attention to partnerships with startups due to their ability to launch APIs that easily integrate into their digital platforms. Of course, security is increased to avoid any possible threat due to external connections. User data protection is a must that none of those involved will undervalue, for sure.
The disruptive impact of fintechs allows a particular online banking to make the difference and stand out from the competition. How do they do it? Offering the technical talent required to implement the latest innovations due to developments that integrate artificial intelligence, machine learning and natural language processing.
The advance of fintechs in banking
The competitive advantages that technology brings to any of today’s economic and commercial activities are forcing the various economic players to adapt their services and structures to the new paradigm. Today, however, this transition has a particular ally: financial and technological companies, known as fintechs, for their acronym in English, financial technology.
For their part, the companies that make up this emerging sector understand this situation and orient their services to meet this demand and need for banking, especially in the case of traditional banking and large banks in Spain. These companies understand the need for an agile and efficient transition of their structures.
The collaboration between the two sectors solves a historical conflict of large banks and financial institutions, which do not have to make a major investment to adapt their services to the new technological trends to which users have become accustomed, especially after the pandemic. In this sense, an effective digital presence represents a differential attribute for the new generations of customers.
Technology is revolutionizing the financial services value chain
As technology reduces the costs of financial services, the industry is striving to add value to its products for the end customer. Avoiding the arrival of intermediaries as far as possible and displaying a strong brand image in the user interface are key when it comes to differentiating your company in this sector.
It is also possible to add value in a profitable way thanks to the white label technological developments launched by fintech startups. These companies offer their partners the possibility of purchasing only the modules they need at any given time to satisfy the needs of their customers. Always with the guarantee of improving the customer journey.
Current trends highlight the importance of including advice in financial services, to increase satisfaction and generate greater engagement. The most valued banking applications integrate various tips, personalized recommendations and automatic alerts that significantly improve the buyer journey.
Alliance between banks and fintechs
The alliance between the different parts of the sector allows banks such as BBVA or Santander to accelerate the pending digital transformation process. At the same time, an alliance of this type also benefits fintechs, as they fit into a business model in which their presence is essential to constantly improve performance and customer loyalty.
Today, the transformation process does not require the financial sector to invest heavily. The fintech strategy, in this sense, is to offer the ability to adapt the institution’s structures and services to an IT services infrastructure in which the digital presence is favored and updated.
From a business perspective, it is indisputable that the future of the financial sector is intimately linked -like the rest of society’s activities- to the presence of banks, credit unions and financial institutions in general within a digital financial ecosystem. In this sense, banks are aware of the need to position themselves -or begin to position themselves- as leaders in digital banking.
Benefits of a partnership between banks and fintechs companies
Although we have already indirectly mentioned some of the benefits associated with the alliance between these players in the banking and financial sector and companies in the financial technology sector, there are multiple benefits that can be specified and that show how prolific this alliance can be.
Among them we can mention the integration of services, improved operational performance, marketing advantages and the constitution of a broader and more accessible database, to the benefits strictly related to the cost of operations and financial inclusion, among many others.
Performance and profitability
By reengineering processes to deliver services efficiently, the alliance between fintechs and financial institutions significantly improves the performance of operations. These operations become faster, more precise and can be adapted to the needs and profile of each client. By representing a reduction in the cost of management, this also generates greater profitability.
Experience and loyalty
The previous point generates a second benefit that has to do with the customer’s user experience. Nowadays, customers are considered, at the same time, as users: they expect and demand a type of service in line with the times and advantages offered by information technology. Therefore, they prefer those entities that can offer them dynamic and enjoyable solutions.
A third benefit of this type of alliance is the ability to diversify the loan portfolio and broaden the range of services available. By collecting data on users and their preferences, credit history and other information with prior consent, banks and financial institutions obtain a reliable database from which they can better understand the customer/user and the risk involved in issuing credit and loans.
Security and availability
Companies in the fintech sector have not only the ability to improve the services and operations offered to customers, but also the ability to secure the information and protection of the data collected. In this regard, there are European Union regulations and directives (PDS2 Directive) that regulate the sector’s activities and establish strict security and compliance requirements.
One step further in data monetization: transactional enrichment
Financial institutions have great understanding about their users. But when it comes to monetizing this knowledge, fintechs lead the way. Why? Because they have gone beyond static data and are able to combine rich data from multiple sources and use it in real time to provide an analysis of the financial situation.
The potential of this approach does not go unnoticed by banking entities. Data is increasingly important and banks are beginning to take an interest in aspects that they previously overlooked. The massive adoption of digital payment methods makes it possible for anyone to leave a mark with their daily purchases and it is possible to establish behavioral patterns.
Through their phones, customers can interact with their bank to carry out transactions, make inquiries, manage their savings or purchase a financial product. All that is recorded and can help the banking industry create user profiles based on different variables: lifestyle, previously purchased products, interests, etc.
The use of digital platforms continues to increase
Almost 90% of Spaniards already carry out their banking operations through the internet and mobile. Customers increasingly demand more functionalities within their online banking and, in addition, they want all the options their bank offers to be integrated in one place. One more step towards financial services becoming completely accessible to the population.
Thanks to the alliance between entities and startups, it is possible to offer users simple, comprehensive and 100% digital management of their personal finances. There are already several national banks that integrate tools with which citizens can improve their financial health effortlessly. Here I leave you the example of EVO Banco and its cashback platform, a way to move forward in the industry.
They were awarded in 2022 as the Most Innovative Bank in Europe by The World Finance, continuing its commitment to technology with the help of fintech companies and maintaining their prominence in the global financial market. In the next few years, this bank and others will become revolutionaries due to their ability to anticipate the needs of customers.
I’m not talking science fiction, AI is already being applied in transactional analysis with amazing results. The ability to detect new upsell and cross-sell opportunities is just one example of its immediate and proven benefits. The plain truth is that engines trained in Spanish represent a huge competitive advantage for the sector.
If you want to know more about it, here is an article that might be of interest to you. Thanks for reading!
About the Autor
Óscar Barba is co-founder and CTO of Coinscrap Finance and SenseiZero. He is an expert Scrum Manager with more than 6 years of experience in the collection and semantic analysis of data in the financial sector, classification of bank transactions, deep learning applied to stock market sentiment analysis systems and the measurement of the carbon footprint associated with transactional data.
With extensive experience in the banking and insurance sector, Óscar is finishing his PhD in Information Technology right now. He is an Engineer and Master in Computer Engineering from the University of Vigo and Master in Electronic Commerce from the University of Salamanca. In addition, Scrum Manager and Project Management Certificate from the CNTG, SOA Architecture and Web Services Certificate from the University of Salamanca and more.