The emerging technologies have played a huge role in bringing newer innovations in the banking industry. For instance, 4G internet and chatbots transformed the banking sector massively, paving the way for a smooth customer interaction. Also, at the same time development of online businesses had built the ground for non-banking online-payment solutions, when the FinTech firms took the much-needed advantage and created a roadblock for the monopoly of these legacy financial institutions. With all the disruptions that are shaping the banking industry by FinTechs, it may be the right time to discuss the major differences between them and the traditional banks. The article also outlines how banks are embracing FinTech in an attempt to become digitally savvy.  Nowadays, some of the biggest breakthroughs in banking are powered by FinTech and FinTech products from companies like Paytm have gained a lot of popularity. Why the FinTech-Bank collaboration works is because banks provide a ready-made infrastructure backed by industry expertise whereas FinTech firms bring new use cases of technology and agility. There has been tremendous growth in pan-India payment platforms in the last three years which took digital wallets to the masses.

Major Differences Between FinTech And Traditional Banks

Purpose:

• The most significant difference between FinTech firms and the traditional banks is the purpose. Fintech products are created by identifying a gap in the marketplace whereas legacy institutions like banks cater to the wider audience.
• Legacy banks majorly focus on the management of risk whereas FinTech firms focus on managing the overarching customers’ experience.

Personalisation:

• In terms of improving user experience, banks are now toeing the line of new-age FinTech companies. Traditionally, banks had been laggards,a regulated institutions that supply credit, the lifeblood of economic growth and have got sovereign insurance for their liabilities of the deposits and have a very resilient business model which focuses more on trust and security, significant capitalisation and customer indifference.
• FinTech usually focuses on mobile functionality, big data, accessibility, agility, cloud computing, contextuality, personalisation and convenience. They accelerate and prefer a change in the customer preference around mobiles platforms, smartphones and social media.

Communication Pattern:

• The core premise of FinTech firms has been ‘user experience’ and the implementation of good user experience. This is the aspect where banks fell behind and are only integrating good UX practices to ensure customers have a seamless interaction. Case in point, 2018 went down as the year of chatbot launches by major banks
• Whereas FinTech’s communication pattern is such that other than this their focus is on innovations that promulgates faster transactions, 24×7 permanent access, immediate consultation and remote account opening which gives much more significance to their communication with the customers.

Potential Coverage:

• Market distribution of FinTechs is higher due to higher penetration of mobile phone connectivity in comparison with the physical distribution of banks. For example, in India, mobile penetration stands at 80 percent in comparison to the bank’s 35 percent distribution which gives FinTech an uncanny advantage over banks.

Key Functioning:

• Banks are more process-oriented. The legacy systems and regulatory framework they carry restricts their ability to quickly leverage new technologies and roll out new products and services which can address the customer issues.
• Banks legacy infrastructure and disengaged workforce showcase an asymmetric risk profile for innovation. Within legacy banks scores of assets accumulated over time add little incremental value as a major portion of these assets drains on productivity, innovation, corporate energy and profitability because of which banks have a severe potential downside reputation and operations.
• Whereas FinTech’s new-age data native companies are more customer-oriented asset and have lean operating models are free of legacy system issues and have better regulatory arbitrage. FinTechs have flatter organisational structures with fewer barriers to change. This structure encourages not only innovation but the ability to tear down and rebuild its non-performing structures.
• This allows them to leverage new technologies like cloud and artificial intelligence to offer a highly unique customer experience centred on personalisation, speed, relevance, and seamless delivery. FinTech streamlines complex financial processes, making it more accessible to people. This is an area that is led by data-native companies such as Google, Amazon and Paypal which have all rolled out niche products targeted for millennial segment.

Technology Perspective:

• FinTech companies depend heavily on technologies like automation, artificial intelligence, and machine learning which is the reason for the faster rate of functioning.
• Traditional banks are still grappling with legacy infrastructure.
• Incorporating such technologies like these leads to lesser mistakes, ensures the quality of service and provides any quick service on a shorter notice.

Outlook

Banks have dramatically evolved in the way it functions under the influence of new age technologies such as analytics, AI and machine learning .And FinTech startups too are fast picking up in the adoption of technologies .

Some of the banks are even acquiring FinTech startups to enhance their services. Many financial institutions including Barclays, Citibank, Goldman Sachs have accelerator programs for FinTechs whereas BNP Paribas, HSBC, UBS and Deutsche Bank have invested into FinTech firms which offer solutions across personal finance, wealth management, lending, payments, settlement blockchain, data analytics and other regulatory technology.

India has already gained significant ground in the FinTech ecosystem with a good supply of proficient and inexpensive talent. Collaboration between ICICI Bank and Paytm on digital credit account is a good example of how banks have started partnering with FinTech firms at large. With innovative ideas and cost reduction technology brought in by FinTech companies, the traditional banking environment and business is set to get disrupted. But banks must understand the FinTech noise in order to rebuild their business models according to the new banking and financial environment.