How can banks deal with the new fintech competition?

Despite the fact that Bill Gates referred to retail banks as "dinosaurs" more than 25 years ago, the phrase may still be accurate today. The growth of the Internet has had little effect on banking for small and medium-sized businesses (SMEs). 

Banks have mostly concentrated their digitization efforts on the most common consumer activities, such as remote deposits and online account access. The retail lending industry as a whole hasn't done much better. Only 7% of bank credit products can be handled digitally from beginning to finish, according to a recent Bain and SAP study.

Banks are susceptible because of the sluggishness with which they've shifted SME financing online. The dinosaurs can be "defeated," according to Gates' original comment. Although this hasn't occurred yet, findings indicate that internet lending poses a serious threat to traditional community banks. U.S. banks must finally take the next wave of financial technology (fintech) seriously if they are to survive. As a result of the research, we've concluded that they have options for staying competitive online.

How Can Banks Compete With Fintech?

For the next 20 to 30 years, baby boomers may be a bank's primary customer base. On the other side, there are an additional 73 million prospective clients who will use the bank's millennial-specific goods and services. 

It is also critical to embrace a startup mindset when it comes to recruiting new employees, not merely in terms of making procedures more efficient. Then consider “acqui-hiring”, in which case you buy a smaller fintech company and all of its personnel. JP Morgan, for example, just bought WePay. Another strategy is to boost specialized skills while reducing recruiting expenses by working with independent contractors and freelancers. It is also worth mentioning that as the competition between traditional banks and fintech companies increases, many banks decide to offer their clients several advantages. One of the examples are bank account promotions, which allow investors and clients to get benefits from banks, based on their account. In addition, it should be mentioned that the more expensive a bank account is, the more profits you get. 

Intelligent automation's underlying technology has matured to the point where it can enable banks to make the whole transition to digital operations. Intelligent automation in banking may save up to $70 billion by 2025, according to a study.

End-to-end implementation of intelligent automation in financial institutions improves client interaction and turnaround times, not simply by increasing the efficiency of current procedures. An essential aspect of a complete business process model redesign is the use of intelligent automation. This includes changes to governance and rules as well as the roles, responsibilities and organizational structure of employees.

As a result, many traditional banks fail to consider all of the backend operations when designing a customer-facing experience. Instead of concentrating on the intrinsic value of data to improve client relationships and differentiate themselves apart from fintechs, they sometimes waste time on net promoter ratings. Only through rethinking and streamlining your company operations can these challenges be alleviated. Intelligent automation may be used by a bank to acquire and analyze data, reducing the number of contact points and time-consuming fulfillment areas, as an example.

Financial institutions must always adapt to the large inflow of fintechs by increasing productivity and reducing expenses. Intelligent automation may be used to continually enhance operations due to a lack of specialized human skills and a rise in the cost of recruiting.

Without a doubt, owing to manual verifications and other factors, client onboarding may quickly become a time-consuming procedure. Using data capture, intelligent automation may shorten the process by automatically matching information given by the new client with the information already stored.

Structured and unstructured data, as well as compliance papers, may be decoded by artificial intelligence, and the resulting data can be sent to the appropriate areas. Data may be processed by intelligence automation using inputs provided by compliance employees. As a result, banks will be able to save money and time.

In a highly regulated business like banking, AML standards are vital, but monitoring for suspected behavior requires a lot of data. Intelligent automation, on the other hand, may save both time and money by automating rule-based AML operations.

The automated validation of credit card applications, the improvement of compliance around account closure requests by sending automated notifications and reminders of required documents, and even the automation of employee onboarding processes are all examples of how intelligent automation can help banks compete against disruption from fintechs.

SMEs And Fintech Industry

Banking services for small companies are beginning to expect online and mobile user experiences that are comparable to what they experience in their personal life. In a recent poll, 56% of SMEs said they wanted improved digital banking facilities, according to Javelin Research. Of the small company owners surveyed, more than 60% said they would like to apply for loans exclusively online, according to a second, upcoming poll by Oliver Wyman and Fundera.

There are several benefits to digitalization for small businesses, including a reduction in costs at every step in the process, making SME clients more lucrative for lenders, and opening up new markets to service. As the study in a recent HBS Working Paper shows, some small firms are not being serviced  by SME financing transaction costs. 

As a consequence of these dynamics, new digital entrants have seen a market potential and there has been an explosion in online lending to small businesses from fintech firms. More than $300 billion in SME loans were outstanding at U.S. banks as of last year, while fewer than $10 billion in SME loans were financed by Internet lenders in 2013. However, despite the fact that internet lenders now have a small part of the industry, there is enormous potential: For online SME lenders, Morgan Stanley estimates a $280 billion addressable market and anticipates a 47% yearly growth rate through 2022. They expect that internet lenders will form approximately a fifth of the overall SME loan market by then. Banking executives have long feared that digitalization might upend traditional business models, allowing new players to enter the market and put pressure on the industry's leaders.