Fintechs have rapidly transformed the financial landscape through their innovations. But scores of startups are now in crisis. Decades of banking knowledge could help them get back on the path to success, finews.ch has found.
In a changing financial landscape, the relationship between fintechs and banks has been in a strong state of flux. They are no longer mainly adversaries, but frequently allies collaborating towards a common goal, as the strengths of the one side can compensate for the weaknesses of the other. Partnerships between banks and fintechs often serve as catalysts.
Painful Reality Check
Young startups are helping to revolutionize the financial sector, modernize outdated systems and expand service offerings with their innovative strengths and technological agility. But the fintech industry, long accustomed to success, has suffered some significant setbacks since interest rates began their upwards march.
The consequence? Investment has gone into a tailspin. Many business models that prioritized growth over profitability at all costs during the low interest rate period have imploded. Mass redundancies have often been the outcome.
In short, many fintechs have been confronted with the cold, hard reality of the new interest rate environment and are struggling to stay afloat.
Survival Strategies in Times of Crisis
On the other side of the coin, most banks have learned over decades to effectively respond to financial crises or market disruption. They can now help fintechs tackle economic challenges.
Finews.ch has identified five areas in which young companies can use knowledge and experience from traditional banks to strengthen their crisis resilience and competitiveness.
1. Overcoming Risks
Banks have developed a deep understanding of risk management. They use sophisticated models and analyses to assess and mitigate credit, market and operational risks. This experience is valuable for fintechs as they often operate in risky and innovative areas. By using established risk management practices, they can enhance their own strategies, minimize financial losses and strengthen the trust of investors and customers.
2. Navigating Through the Regulatory Jungle
The banking business is subject to strict regulatory requirements. Banks have extensive experience in dealing with these complex regulations and building effective compliance systems. As they often start life in a less regulated environment, fintechs can benefit from this knowledge to overcome regulatory challenges and avoid future legal problems.
3. Digital Dilemma
Banks have extensive experience in building and maintaining long-term customer relationships. They know how important personal relationships and customer service are. Because fintechs are often purely digital and have less physical interaction with customers, they can benefit from this advantage of banks to build stronger and more sustainable customer relationships.
4. Embracing Variety Over Monoculture
Banks generally also offer a broad range of financial products and services. This variety means they can meet different customer needs and diversify their revenue streams. Fintechs can leverage this expertise to enhance their own offering and appeal to a wider customer base, which will also help diversify business risk and improve resilience.
5. Security Briefing
In a sector where handling sensitive data is a mundane, everyday task, banks have acquired a wealth of knowledge in data security and privacy. Fintechs can make use of this expertise to strengthen their own systems and gain the trust of their customers. Given the increasing importance of data protection regulations, this experience is particularly valuable.
