How have the many new FinTechs proven themselves in the market after the financial crisis and what is the relationship between established banks and the new financial technology companies? FINANCE magazine, in collaboration with ING Bank and CMS, a tax and legal consulting firm, has carried out a study on this subject – with the result that a change in thinking seems to be in the offing.
Many of the new financial technologies were once introduced to the market with the basic idea and intention of renewing the financial sector. FinTechs can often offer customers more flexible services than traditional banks, especially in the mobile and online sectors.
There are now almost 300 German FinTech companies in Germany, of which around a quarter are involved in financing solutions. Nearly a fifth concentrates on the real estate industry. Further focal points are payment transactions and accounting solutions. More than a third of FinTechs' German customers are corporate customers. But so far only a very small number of them – openly or covertly – cooperate with established banks, most of them see themselves as competitors.
Where is the FinTech Revolution?
According to the study, the main reasons why FinTechs have not yet overtaken the banks are the difficult market and internal problems within the FinTech companies. After all, bank customers are demanding and it takes a lot of trust on their part to place their finances in the hands of new companies that have not yet long established themselves in the market. Bank customers are used to reliability from their house banks and therefore do not tolerate any mistakes at FinTechs – especially when it comes to service and data security.
But especially with young companies – and most FinTechs are still far less than 10 years on the market – the innovative processes are often still in their infancy. With corresponding error potential. In addition, even the established banks do not stand idly by when it comes to their customers. They try to hold their own against it with their own offers and keep their customers.
Innovative strength or not: FinTechs are not disruptive innovations that revolutionize the established market and change its essence sustainably, but only complement it with new ideas and services. Moreover, according to the FINANCE study, many of the FinTechs are struggling with weak financing.
Combining strengths against big tech competition
A possible win-win situation for most FinTechs and banks could be cooperation: This could result in innovative, flexible new opportunities and offers, which would provide the necessary backing, experience and financial security through a strong, established banking partner. The banks need to have the courage to take risks: only those who dare something new can win. However, the fears of those who are concerned about losing something are often too great for the established banks to engage in cooperation.
The relationship between banks and Fintechs has changed over time.
While the FinTechs wanted to take the market by storm and found out that it is more difficult than expected to find enough customers to finance themselves, the established banks are gradually beginning to rethink: Since FinTechs are not a temporary phenomenon, there was the realization that there is no way around developing one's own model through digitization and innovation in order to satisfy customers. Creative developers are needed – and they can often be found at FinTechs.
According to the FINANCE study, however, both banks and FinTechs are increasingly realizing that cooperation would be the best way to continue to have a chance against big players such as Apple, Amazon, Google and Co. in the future before they create solutions with the three sought-after strengths – innovation potential, large customer base and sufficient capital – that convince German companies and private customers to migrate.