The FinTech industry continued its growth in 2020 and 2021 despite the challenges brought about by the pandemic. Its resilience owes to the ever-growing demand for financial products that exploded when most people decided to switch from traditional models to digital models. The demand for innovative financial products kept skyrocketing during the pandemic times due to a switch from traditional bookkeeping models to automated bookkeeping models.Here is what we can expect in the FinTech industry in the months to come:
FinTech industry will still struggle to breakeven
Despite the disruption FinTech industry has brought to the financial sector and their ability to usher in new innovative products to the sector, the traditional banks still hold more capital compared to FinTech industry. However, you can optimistically expect a convergence where banks slate to provide capital while FinTech provides a front-end platform for customers such as bookkeeping automation tools.
Until recently, banks and FinTech have viewed each other indifferently. The FinTech industry specifically believes they could put the latter out of business. While the banks looked at the FinTech industry as temporal market disruptors that could soon fade with the wind.
We are now experiencing a paradigm shift where both sides are beginning to see the importance of convergence for the common good of their customers. The FinTech industry has realized the importance of long-term presence in the market. That is why embracing the common saying “if you can’t beat them, then, join them” is a strategy to amass their market presence and awareness.
It is not to say the banks are losing any, in fact, if anything, they are adding agility and creativity to their traditional operations.
Convergence brings with it conflicts between banks and start-ups
Even when everything looks good for the convergence, it is not without friction. Both FinTech and banks are willing to collaborate but there are underlying issues that need attention from both industry players. If we pin out what necessitated the convergence in the first place, it boils down to — size & scale and, dynamism & agility of the start-up. It creates a noticeable source of friction due to the clash between ideologies from both sides. On one end, banks commit to profitability while start-ups or FinTech concentrate most on innovations.
According to senior managers in banks, they commit to deliver profitability to the shareholders, and if FinTech doesn’t come in to enhance that, it is not hard to see this promise slip through priorities. Therefore, this limits how banks justify the need to pump in a significant amount of money towards innovations if no tangible return is feasible.
From a FinTech perspective, there is fear that the bank’s interest in partnership with start-ups is fueled by an urge to corral the disruptive nature of FinTech.
To show goodwill, start-ups need to up their game when collaborating with bigger entities and adapt swiftly to how banks work. Doing so makes it easy for banks to realize how important FinTech is to their operations.
Why is it that FinTech companies are responsible for fantastic innovations yet they struggle to monetize or ensure profitability? In a nutshell, the sector lacks economic sense but its impacts on people’s lives are real.
Change is inevitable
Despite the tension that exists between the industry players, banks have to embrace innovation no matter the means. Whether to partner with a FinTech company or buy one of their own, it needs to accelerate change. Taking into account the amount of change the sector has realized in recent times. Innovations in bookkeeping automation, for example, has led to a rise in the amount of plastic money and drastic drop in cash. The same has happened to mobile money. So change is real, change is inevitable and change is accelerating!
What to expect after the pandemic is most certainly more hustle and bustle, as FinTech companies strategize to monetize their innovations, while banks embrace agility in its operations.
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