From 2008 to 2017, nearly 2,500 new financial companies were established, according to FinTech by the Numbers from Deloitte. Among them, 666 startups were founded in the category of payments, 417 – in investment management, and 228 – in the capital raising. New firms attracted millions in funding from VCs. What’s more important, they attracted thousands of clients who left old-fashioned banks for startups.
Nearly perfect UI/UX, highly personalized offers, low fees, quick round-the-clock access – these reasons drive the global demand. FinTech teams can conquer the whole industry of online banking. At Diceus, we work with startups and banks so can compare different approaches. And we’re sure that startups have the upper hand. In the guide, our experts talk about essential lessons from the FinTech sphere for banks.
Guaranteed software project success with a free 30-minute strategy session!
Banks vs. Startups
The Current State of Markets
First and foremost, you may ask why we should analyze the FinTech startups banking landscape. It’s well-known that new companies tend to disrupt consumer banking services. But what’s up with the same industry for enterprise customers? Well, it evolves, too. Businesses around the globe start working with fresh digital-savvy providers more often.
In EY Global FinTech Adoption Index 2019, analysts surveyed 1,000 SMEs from the USA, the UK, China, Mexico, and South Africa. The global adoption rate was 25%. It means that one in four SMEs has used financial tech services from four main categories: payments, financial management, insurance, and general financing. And this rate is pretty high.
The same report uncovers top reasons for cooperation with FinTech companies:
- New features and extensive functionality – 66%.
- 24/7 availability of services – 55%.
- Simple tuning and use of tools – 53%.
- Low rates and fees – 39%.
- High compatibility with daily operations – 38%.
- Trust in the reputation – 31%.
The trend shows that small and medium businesses will migrate from legacy banks to startup firms faster soon. Hence, the first lesson for all traditional banks sounds as follows: evolve or die. It’s tough, but it’s true. We doubt that banks can survive without proper digital transformation, upgraded IT infrastructure, and redesigned approach to customers.
The rising power of FinTech startups banking is undeniable. To grasp its driving forces, we suggest checking crucial discrepancy between traditional enterprise banks and fresh financial startups. Leading industry executives share their opinion on this contrast:
- Attention to one custom product. Richard Brown from IBM talks about pure startups – new firms that have only one product/service. He points out that these teams can build value from scratch, invest in it, and then switch to other offers if needed.
- Focus on customer experience. Alex Jimenez from Rockland Trust thinks that banks pay too great attention to risk management. Instead, FinTech companies work on the perfect customer experience and satisfaction, delivering personalized services.
- Culture of innovation. Jim Marous from Digital Banking Report says that startups have flat organization structures. Thus, they encourage usage of various changes, focus on constant upgrading, rebuilding, and implementation of new tech.
- Relatively small size. Duena Blomstrom insists that the FinTech vision is similar for both startups and big banks. But small and flexible firms can keep their passion and common sense, save knowledge, and remember purposes.
Of course, other well-known differences matter, too. FinTechs can target underbanked clients, work with people who’re looking for specific advantages such as 24/7 availability, zero-fee processing, mobile-only approach, etc.
Note that the following info is more focused on enterprise online banking. This segment differs from consumer services, so some lessons are exclusive for it.
Do you want to read more about innovative consumer online banking, too? Look at our study dedicated to blockchain adoption in banks.
Lessons from the FinTech Space
Lesson #1 – Understand Customers
Well, this idea may sound familiar, but it’s never too much of it. The most essential and the most profitable secret of any FinTech team is in the customer-centric approach. Traditional banks have tangled non-friendly services because of tons of rules and bureaucracy primacy. Startups know that people don’t like it. Thus, they study clients, understand their pains and wishes, and deliver the demanded products or services with seamless UI/UX.
Many success stories begin with a problem. Let’s say, Taavet Hinrikus, TransferWise CEO, decided to launch a P2P money transfer service with low fees because he found that he loses around 5% on each transaction. And millions of people faced the same issue. Hinrikus enabled empathy to find out customer needs and introduce a viable solution. Means, you should study the FinTech startups banking world with its users if you’re going to evolve.
Lesson #2 – Foster Inclusion
This part is strongly connected to the previous one. Inclusion here divides into two essential elements for FinTech companies. Of course, banks also should focus on them:
- Audience coverage. Similarly to individuals, some SMEs are unbanked or underbanked, i.e. they don’t have proper access to online banking services. Respectively, startups can target them to deliver the required offers like money transfers, loans, or saving accounts. Financial consultations and management solutions are highly demanded, too.
- Omni-channel interactions. Apart from general inclusion, financial institutions should care about reach. It’s better to invest in different channels, from traditional phones and emails to exotic social media. By combining digital and physical interactions, you could cover the majority of business customers.
As you can see, proper inclusion requires both strategical and technical business decisions. It’s not an easy task, but it helps startups in building top-quality services.
Lesson #3 – Focus on One Solution
Today, enterprise financial companies focus on a wide range of services. They handle investment banking, management, payments, billing, and so on. Instead, FinTech startups banking teams don’t have enough resources to play in all fields, so they choose only one service and polish it. By creating targeted products, these companies reach high ROI. Hence, banks should look at delivering core value into new narrow areas.
Lesson #4 – Be Agile
Most usually, startups stick to Agile development methods. They facilitate quick releases, feedback gathering, and budget spending. Agile focuses on a series of short sprints with unique goals in each and regular customer feedback, so that developers can adapt to changes rapidly. By adding elements of this vision, banks run their digital transformations.
Moreover, under agility, we understand other principles, as well. For instance, a versatile reaction to customer concerns can save the entire business. By adding several support options like channels in messengers (Telegram, Slack) or 24/7 custom online chats, you can show that you prioritize client needs and are ready to answer at any moment.
Lesson #5 – Move to Open Banking
Historically, banks tend to hide data. With new initiatives in the area of open banking, this approach becomes outdated. Startups realize the potential benefits, so they build products based on open APIs, modular structures, and third-party connections. They design an innovative financial ecosystem where developers create apps and connect them to existing solutions. Simultaneously, data is protected, and users get more control over it.
If you’re interested in open banking concepts and their influence on financial services, read the Diceus guide dedicated to this topic.
Stories of Famous FinTech Companies
Following the previous ideas, let’s also look at some famous use cases. We bet that you know the next names. But all of them are (or were) FinTech startups banking groups focused on advanced and innovative financial services. Today, their stories can help both new firms and enterprise banks to evolve, solve the industry challenges, and grow.
Here are the most engaging cases of leading FinTechs related to business services:
- Adyen. It’s a global payment solution for the B2B sector. It supports more than 250 payment methods, including online, mobile, and POS options. Moreover, new ways will be added as new technologies arise. As for the results, Adyen works with many notable customers: Netflix, Spotify, Uber, and eBay.
- Coinbase. If you’re interested in cryptocurrencies, you know this firm. Coinbase is one of the most successful startup unicorns with a valuation of $1.6 billion. It allows buying and selling crypto for fiat, meet all regulatory requirements, and was never hacked. Overall, it shows how to make an ambiguous industry of crypto highly attractive.
- Funding Circle. The UK-based peer-to-peer lending platform makes business loans simpler. Simplicity, speed, and transparency fit into the concept of a customer-centric approach. It’s not a surprise that 77,000 SMEs used this service with more than £8 billion originated loans!
- Onfido. This team focuses on background checks performed quickly by analyzing docs and photos. Onfido uses ML and AI to automate these verifications, so that clients can save much time. The company is an excellent example of the successful adoption of new technologies that replace outdated methods.
Let’s Evolve Together
Well, so why are these lessons essential for enterprise banks? Most importantly, it’s because of their relevance. Undoubtedly, FinTech startups are developing at insane rates, focusing not only on underbanked companies but on traditional businesses, too. Without a proper response, banks can lose the majority of clients because of an outdated approach, not as tailored services, and a poor connection to customers.
At Diceus, we work with online banking firms from different regions, including the top 10 countries by FinTech startups banking adoption. We clearly see that new market players offer better products. But we also see that banks can run digital transformations if they realize the lessons mentioned above. If you’re ready to change, it’s time. Just contact us to start this journey, from the initial consultation through brand analysis and solution planning to implementation and support.
Guaranteed software project success with a free 30-minute strategy session!