How the Emergence of Fintech impacted the Traditional Banking System
The financial industry has undergone a deep transformation with the emergence of Fintech (financial technology). These innovative companies are specialized in the application of information and communication techniques to finance. They use technology to offer more accessible, efficient, and personalized financial services.
The mistrust of economic actors in the transparency of financial institutions, the action of civil society in social and environmental responsibility and the criticism of the functioning of financial markets have encouraged new concepts and new tools: blockchain, crowdfunding, marketplaces, cryptocurrencies, etc. Fintech disrupted the traditional banking system and opened up new possibilities in the financial landscape.
First, the Fintech revolution lies on accessibility. While traditional banks require procedures, documentation, and in-person visits, Fintech have provided digital solutions accessible through mobile applications and online platforms. This has allowed consumers to make payments, money transfers, loans, and investments in just a few clicks.
These transformations contributed to cost reduction. Fintech companies destroyed some of the fees traditionally associated with banks. Automated procedures have led to efficiency, faster processing times, instant loan decisions, and more efficient transaction management.
Fintech also revolutionized payment methods by introducing innovative solutions. Digital wallets, mobile payments, cryptocurrencies, and peer-to-peer payment technologies have provided convenient and secure alternatives to traditional payment methods. Consumers can now conduct instant and frictionless transactions. Additionally, crowdfunding and microcredit have enabled funding for projects and businesses through collective participation, expanding the available financing options.
Finally, Fintech have placed significant emphasis on user experience, offering user-friendly interfaces, streamlined processes, and quick response times, using artificial intelligence and machine learning to analyze customer data and provide investment recommendations, tailored offers, and personalized financial management tools.
The revolution is on it’s way. For example, Bpi France counted in 2022, 600 French innovative Fintech companies, specialized in financing, regulation and risks, payment services and personal finance management, or financial coaching, for a turnover of 8.85 billion euros.
Foreign companies such as N26, Revolut or OakNorth have raised over $1 billion.
Traditional banks had to adapt to remain competitive. They invested in internal innovation by establishing departments dedicated to technology. They also modernized their online interfaces and mobile applications to enhance the user experience. But they mostly opted for strategic partnerships with Fintech or even acquired startups to integrate their innovative technologies and solutions. Most of the time, Fintechs that succeed, are bought by big players (the Nickel account was bought by BNP Paribas, Leetchi by Crédit Mutuel, Potcommun.fr by BPCE, KissKissBankBank by Banque Postale…). Banks are therefore adapting their organization to these new activities based on automation: in 10 years, HSBC has closed 97 branches, BNP 501, Société Générale 396…
Most fintechs eventually collapse, due to a lack of management skills. The payment market is strictly organized and regulated, and a financial company is part of a structured economic and legal environment, requiring a high level of technical knowledge.
They need to be supported by structures specialized in the development and support of FinTech companies that can offer them access to their expertise in innovation, new payments methods or digital transformation.