FinTech disruption is changing how we think about banking. In the past, customers had to visit a branch just to deposit a check. Now, many deposits are made directly from phones, whenever and wherever needed.
This convenience comes at a cost. Traditional banks have to make major changes to their business strategies. They also have to consider security issues, infrastructure limitations and budget. In recent years, many banks have struggled to overcome these challenges.
But with the right business intelligence (BI) strategy, banks can regain their share of the financial market. FinTech disruption doesn’t have to be the nail in the coffin of traditional banking. It can be the driving force that encourages banks to provide better services to their customers and become more successful in the future.
How FinTech Disruption Affects Traditional Banks
FinTech is a broad term that includes any technology that companies use to manage finances or provide financial services. Chances are, you already use FinTech in some form. For example, if you’ve ever purchased something online (either by credit card or an online payment system), you’ve used FinTech.
This type of technology has been around for many decades. It’s been used to some degree since the 1860s, with the invention of the first transatlantic telegraph cable. Today, we’re seeing the greatest FinTech advances in online shopping, mobile banking, and cryptocurrency. Auto lenders are using fintech to stay competitive in a challenging market. As FinTech evolves, financial management becomes much more efficient and convenient.
However, while there are many benefits to FinTech, it also causes a number of problems, especially for traditional banks. FinTech disruption has made it harder for many financial institutions to attract and retain customers. It’s also made customers more vulnerable to data breaches, identify theft and fraud. Some of these new, online-only merchants have fewer security protocols compared with traditional financial institutions.
The FinTech disruption trend began when companies started offering end-to-end financial transactions online and in the cloud. Customers no longer have to purchase goods using a credit card or keep their money in traditional banks. They can now buy products and accept payments for services through an online merchant. It’s enough to make you use harsh words like “disintermediation”.
The competition is stiffer than ever. Because end-to-end services are so convenient, some customers are choosing online providers over traditional banks. Even though banks often offer better security and fraud prevention, some customers still choose convenience over safety.
Customers also expect more from their financial institutions. For example, these services were once rare, but are now standard:
- Online account management;
- Mobile check deposits;
- Online billing or person-to-person payments;
- Paperless statements;
- Live, 24/7 customer support (by phone and online chat); and
- Fast online loan and credit card approvals.
If banks hope to compete in the modern financial industry, they must take action now. The good news is that, with the right tools, traditional banks can overcome FinTech disruption and offer customers all of these essential services.
What Can Traditional Banks Do to Fight Back?
Traditional banks don’t have to become obsolete. Banks that leverage the power of business intelligence (BI) can compete on the same level as online providers. In many cases, they can offer better services because they have more resources and experience.
The challenge is to expand the online and mobile services without compromising security. This isn’t always easy; there are many factors to consider before this transition. With help from an experienced IT firm, you can incorporate business intelligence into your strategy while meeting every compliance standard.
An IT firm will first help you create a BI roadmap. Experts will assess your existing systems and provide you with a list of possible solutions to help your business run more efficiently. They may suggest:
- Building a new user-friendly customer portal for online and mobile banking;
- Building a portal for internal use that employees can access more easily;
- Creating algorithms to prevent fraud and flag suspicious account activity;
- Transitioning to cloud computing and storage;
- Encrypting private data;
- Keeping secure backups of important data;
- Improving the automatic loan and credit card approval process; and
- Providing customers better online banking support.
The main challenge that traditional banks face whenever they make significant changes to their infrastructure is ensuring security and regulatory compliance, since they’re responsible for highly-confidential data.
For this reason, many large traditional banks choose private cloud storage over public cloud storage. The main difference between the two is that a private cloud is hosted internally and often protected by a firewall, while a public cloud is hosted by a third party that uses its own security protocols. Although a private cloud appears more secure than a public cloud, they can, in fact, be equally secure. Trustworthy public cloud providers maintain very strict security and encryption standards.
The option you should choose depends on your infrastructure and resources. Larger banks typically use private cloud storage because they have the resources necessary to store and maintain their own servers and hire an IT team to keep them running smoothly.
Smaller banks may choose a public cloud server because it is much more cost effective and efficient. When you make the switch to the cloud, you’re able to provide more online services to your customers, such as account management, payment options, and fast approvals on lines of credit. All of your data is stored securely in one place, which allows you to generate important insights. You can also use the most advanced cloud-based fraud detection software, which will help you protect your customers.
However, not all financial institutions are able or willing to make the transition to the cloud. Even if cloud computing or storage isn’t right for your institution, an IT firm can still help you make your existing system run more efficiently. These firms can provide you with the best customer portals, data analytics and 24/7 IT support. Your customers will appreciate having access to convenient FinTech features and you won’t have to manage these services by yourself.
Traditional Banks Can Become FinTech Disruptors
By embracing BI and online banking tools, you’ll not only be able to compete in a post-FinTech disruption world, but you may even become a disruptor yourself. FinTech isn’t just for online merchants or cryptocurrency companies. Traditional banks can also use the latest FinTech advances to get ahead.
Improving your online presence, offering your customers better online support and leveraging the latest BI tools will not only save you time and resources, but it will also attract new customers. The line between FinTech disruptors and traditional banks is starting to blur. You can spearhead this new trend and become a leader in your industry.
If you’re ready to become a FinTech disruptor, contact Tek Leaders today. Our business intelligence experts will evaluate your business strategy and identify the tools you need to compete in the modern financial industry. Or, if you have more questions about our state of the art tools or services, you can reach us by email directly.
Shashank Reddy Tummala.