The ongoing tech boom revealed a significant effect on the role of financial institutions, opening up new horizons for advanced and innovation-friendly companies such as fintechs. These companies have leveraged financial technology to discover untapped markets and change the rules of the industry. In addition, innovation has brought forth a mindset shift in which banks and fintechs flourished from a relationship of competition to collaboration.
Banks and Fintechs Becoming Partners
When the financial technology hype emerged a few years back, banks felt threatened by the arrival of fintech start-ups which were steadily capturing (as well as expanding) the banking market share. However, nowadays, the relationship between banks and fintechs has progressed, since both have understood that their competitive advantages complement each other, providing the skills that the counterpart needs.
Unlike private or public banking, fintech companies have smaller structures that allow them to be more flexible in the face of changing political and economic situations, as is the case in Latin American countries. In addition, testing of new technologies and protocols happens with greater speed. Therefore, it makes sense for larger institutions to rely on fintechs for these aspects instead of spending money and time testing costly and difficult-to-implement systems.
The birth of new financial technologies, such as alternative credit scoring, is one of many examples where banks can take advantage of fintechs’ know-how to reach new consumers. New data enriched technologies have made fintechs pioneers in the development of credit products specially in markets where cash transactions are strong.
Top Benefits of Financial Technology for the Banking Industry:
- Real-time information: Advanced machine learning mechanisms can better understand customer behaviour and offer an improved experience. In this way, institutions such as banks can improve the understanding of a client’s needs and take more assertive loyalty decisions.
- Improvement of security barriers. Fraud is increasingly imperceptible and harmful, which is why a good system is required for protection. For instance, within the credit scoring industry, new technologies are capable of detecting and stopping subscriptions with suspicious behaviour (such as copy/paste or outfill) or devices ( like fraudulent operating systems or IP). Credolab, an alternative data fintech, uses an alternative scoring system to understand a customer’s risk profile using non personal metadata, preventing crimes that attack customers’ identities.
- Cost reduction: The AI automatization avoids all manual processes and, therefore, any human error that could lead to economic losses. For example in the case of payment collection systems, financial technology permits a faster and more efficient process, without mistakes and avoiding misunderstandings with the customer.
- New spaces for innovation within a more controlled framework: Considering that fintechs are less bureaucratic, they have the capacity to endeavour on new projects, change and correct errors on the fly, without the need to make large investments or wait a long time for process approvals.
- Access to new opportunities: Financial technology also provides new business opportunities since it helps find new markets offering products that are more suited to the needs of each company’s customers. In the case of alternative credit scoring, financial technology allows precise credit profiling and taps unexplored segments using technology based on metadata and artificial intelligence.
In short, financial technology enables companies to think outside the box by helping companies explore new markets, make new partnerships and understand their clients through better data analysis and interpretation. As a result, financial technology has become a key pillar for growth in an evolving industry.
