The Fight of Big Banks v. Fintech: Is Fintech Finally Finishing First?
How Big Banks are threatened by the relevance of Fintech companies.
What is Fintech?
Fintech, short for Financial Technology, is a term originally used to characterize startup technology firms. This term has evolved to describe new technologies that are created to help improve the use of financial services.
There are thousands of fintech firms out there trying to disrupt the current market. The way they do so is by creating new means to deposit and withdraw funds, make investments, obtain loans, and make payments.
As we know, big banks and credit card firms currently lead the money market. However, through the integration of mobile apps replacing credit cards and enabling P2P money transfers, fintech is spearheading a shift.
Copious Competition
It’s no surprise with the tremendous advancements technology's made that new companies have emerged, attempting to improve the financial environment. The aim is to convert the traditional banking system by using mobile apps to replace credit cards and enabling money transfers among friends via P2P payments.
The mobile payment market alone showcases the power-struggle between giant companies through three types of apps:
Universal Proximity Payment: can be used at participating merchants as POS payments (Apple Pay, Google Pay, etc.)
Branded Proximity Payment: can only be used at a single merchants stores (Walmart Pay, Starbucks App, Dunkin, etc.)
P2P Payments: can be used to transfer funds among other users with the app (Venmo, Zelle, etc.)
As a consumer, I prefer to use PayPal for online purchases, Apple Pay in a hurry, Zelle or Venmo to transfer to friends, and my credit card when buying something from a brick and mortar location.
The mobile payment market in 2020 generated roughly $530 billion of transaction volume with $400 billion of that coming from P2P payments. This growth is thanks to the hundreds of thousands of Millennials and Gen Z-ers using apps like Venmo and Zelle to transfer money amongst their friends. The phrase “Can I Zelle/Venmo you?” has become second nature to most of us.
Whenever I go out with a group of friends for a meal, instead of having to split the bill and everyone putting their card down, just one person puts their card down and the others Venmo or Zelle their half to the one who paid. I guarantee this is a common practice of Millennials and Gen Z-ers nationwide.
Big Banks won’t back down
Big Banks are naturally feeling the threat of its new-aged competition. In fact, Fintechs are considered the banks biggest competitors.
After years of watching from the sidelines while fintech companies make their way to the forefront, the bank and credit card companies have decided to join in on the digital evolution.
In the US, debit and credit cards account for over $7 trillion of transactions. Naturally, the traditional banking and credit card companies want to keep this card interface alive with the consumer. One way to ensure this remains is by incorporating mobile device payment directly from the banks (and not a third party like Apple).
Big banks like JPMorgan Chase, CitiGroup, Wells Fargo, etc. as well as the credit card companies Visa, Master Card, etc. although late to the game have significant growth potential. They already have established massive trust and loyalty in the consumer. However late to the mobile payment marketplace, its guaranteed that people will at least give their products a chance especially if they already have their apps on their phones (like myself).
But wait — Collaborations?
If you can’t beat ‘em, join ‘em.
As of 2023, banking trends and priorities have shifted from grid-locked competition and many big banks and credit card companies have collaborated with fintech startups, paving the way to the future of financial services. To ensure a successful collab, established institutions should partner with new fintechs in order to keep a united front.
The contrast between traditional banks and fintech is what makes the merge of the two invaluable. Collaborating with fintech firms allows banks the ability to meet the digital banking needs of customers. For example: Deutsche Bank, HSBC, and CitiGroup all partnered with fintech companies and now are leading in the area of their initial concern.
The Future of Fintech…
I believe the future of fintech is bright. Fintech is definitely normalized and will only continue to be as younger generations grow older and that norm of digital payments become trusted as much as traditional banks are today. Considering there are still doubters and cautious Baby-Boomers and Gen X-ers, it may be awhile before the fintech companies come close to big banking and credit cards seniority, but with them under their belt they will surely shine one day!
For more insight on the collab between big banks and fintech I found this Forbes article to be insightful.
