How fintech and banking can work together

For the first time in thousands of years, the future of banking is unclear. Technology is changing at lightning speeds, customers are demanding easier processes and competition from FinTechs is more fierce than ever. Banks need to adapt quickly or risk losing everything. 

But they’ve become complacent. 

For decades, these traditional institutions have held dominant, comfortable positions at the top of the financial totem pole. And who can blame them? Their business model has been so rock solid that it hasn’t needed to be changed along the way. 

But now, with the digital revolution in full swing, banks are scrambling to keep up. While their old ways might have worked in the noughties and the tens, it simply won’t cut it in the twenties.

The solution? Partnering with tech companies. 

Lone wolf tactics have no place in modern banking. It's time for U.S. banks to embrace the power of collaboration. These nimble little guys are taking on the risk to create innovative banking solutions that are changing the world.

Why banks are losing customers

Want to know a surprising stat? Banks globally say they are losing up to 20% of their customers to competitors because their customer experience is not good enough. That’s according to a report from financial software-as-a-service (SaaS) provider 10x Banking. 

The demographics of banking have undergone huge changes in the last hundred years. In the past, women, people of color and low-income earners have been excluded or underserved by traditional banking institutions. 

Thanks to the surge of digital banking platforms, banking has never been more inclusive. Anyone – regardless of sex, race or income – can bank online. The demand for banking services is the biggest it has ever been. It’s also more accessible. Opening a bank account now requires nothing more than a few dollars and a smartphone.

So if the market is flooded with millions of potential customers, where are U.S. banks going wrong?

It's their technology.

The new market demands technology-driven experiences in all aspects of their lives. And banking is no exception. FinTech disruptors like Wise and Stripe have successfully capitalized off this, offering online banking solutions to tech-savvy consumers. 

While traditional banks may offer online services, the bureaucratic hoops to jump through are a strong deterrent. The younger generation demands efficiency and convenience, driving them towards FinTech and away from traditional banking institutions.

What is fintech?

"Fintech" is a combination of "finance" and "technology". It's used to refer to tech companies and startups focused on improving financial services.

Some fintech companies you might recognize are: Venmo, which enables quick transfer of funds via the web; Brex, offering credit cards and cash management to companies; and Wise, which solves the problem of cross-border finance with money transfer and credit card services in 40 different currencies.

Obstacles to change in banking

While it’s clear that technology is essential for U.S. banks to stay competitive, implementing it is easier said than done. Changing processes that were invented when dinosaurs walked the Earth can be hard, slow and messy. 

Chase Bank has over 80 million customers. It has more customers than the entire population of the United Kingdom; imagine them trying to update a system that millions of people rely on. It’s the equivalent of trying to renovate an entire apartment block without annoying any of the 80 million tenants. 

It makes sense that banks try to minimize the inconvenience as much as possible. 

In addition, the backend of retail banking systems is a hot mess of outdated tech – a phenomenon known as "spaghettification." U.S. banks build customized systems and then have to spend a pretty penny upgrading them. These projects can add up to the hundreds of millions of dollars, money that banks would rather not spend. 

Add in the specific security and regulatory hoops banks have to jump through, and it's no wonder that U.S. banks are hesitant to change. 

How banks can stay competitive with fintech

So by now, you’re probably thinking: these banks have a lot working against them. How are they gonna pull this off? This is where tech companies come in. 

These guys are nimble, adaptable and willing to take risks; they’re well-placed to change how things are done. 

By teaming up with tech, traditional banks can tap into their innovative spirit and stay ahead of the curve. It's a win-win situation: the banks gain access to cutting-edge technology, while tech companies benefit from U.S. banks' resources and expertise.

If you can’t beat ‘em, join ‘em, right?

How tech can step up and help bankers

Picture it now: banking and tech. Powerhouse and innovator. An unbeatable collaboration.

Traditional banking provides decades of experience and resources, but how can tech companies step up and hold up their end of the bargain? Let’s start with the obvious one: partnering with a tech company gives you, well, tech!

With access to new tech solutions, banks can streamline their processes, improve efficiency, and enhance customer experiences. Often as part of the process, tech companies can assist banks in transitioning from legacy systems, bringing them closer to where they need to be digitally. 

When it comes to security, U.S. banks have some of the strictest regulations around. This makes it challenging to adopt new technology. While tech companies have a bad rep for being regulatory cowboys of the Wild West, they’re going to have to step up to partner with banks. 

Something that’s not highlighted enough is the agile and adaptable approach tech companies have to problem-solving. Smaller teams that work at a faster pace can help address unique challenges faced by traditional U.S. banks. 

The future of banking

New technology such as artificial intelligence (AI), blockchain and the cloud is making banking easier, faster, cheaper and more efficient than ever before. 

AI may have been 2023’s biggest buzzword, but it’s not just hype – it’s reality. According to a report from Grand View Research, the market value of AI in finance was estimated to be $9.45 billion in 2021 and is expected to grow 16.5 percent by 2030.

FinTech company ZestFinance uses machine learning to analyze vast datasets and accurately predict credit risk for banking customers. In 2019, ZestFinance partnered with Discover Financial Services, a leading U.S. direct bank, to create one of the largest AI-based credit-scoring solutions in the banking industry.

“Banks that fail to invest in machine learning will end up fundamentally uncompetitive in a couple of years,” Roger Hochschild, CEO and president of Discover told BusinessWire. “We found the best way to drive benefits faster was to complement our internal efforts with a partnership with Zest.”

How about Kasisto, the FinTech company behind conversational AI assistant Gabby. This AI-powered chatbot can access account information, make payments and perform other financial transactions without human intervention. With Gabby, 90% of the questions are contained within the assistant so there's no need to escalate to a person.

In February 2024, Kasisto partnered with First Financial Bank which saw a 10% increase in new accounts opened and a 27% increase in new certificate of deposit accounts in the first month using Gabby. 

As you can see, these AI solutions are changing the playing field for banks looking to acquire new customers. It’s yet another clear-cut sign that U.S. banks not embracing new tech with open arms will be left behind. 

What does the future of banking look like?

For the first time in thousands of years, the future of banking is unclear. With tech in the mix, no one can predict the trajectory of U.S. banks in the coming years, decades or even centuries. 

What is clear is change must happen. Banks have to be proactive and adapt to the latest technology to get ahead in this competitive market.

For U.S. banks hesitating on their next move, it’s time to prioritize collaboration: because you aren’t getting through this digital revolution without a helping hand.