Banking Industry: Innovate or Perish

With the advent of digitization, the Banking industry is undergoing a massive change — a disruption in the way traditional banks do business. With technological shifts and changes in regulatory environment, the emerging FinTech players are giving incumbents a good run for their money. New players, business ideas, platforms, and models are rising because of the constantly evolving technological landscape.

There are new innovative technology entrants who are reaching out to customers effectively while most of the banks are still struggling to stay relevant in the business. As customers are leaning toward a seamless digital banking experience, the traditional banking practices are gradually fading into oblivion.

Companies like LendingClub, Square, Uber, Mint, Alibaba, etc., are disrupting the traditional model of banking. LendingClub, for example, provides peer-to-peer loans at lower interest rates, Uber provides auto financing to drivers and Alibaba provides the largest online payment platform.

Digital technologies are reshaping the industry in several ways.

First, financial transactions are moving from traditional channels to digital channels (mobile and web), changing the way customers interact with banks and FinTech companies.

Second, banks are getting unbundled. Lending platforms and digital payments are phenomenally growing, removing reliance on banks for making payments or borrowing money.

Third, the speed of financial transactions has astronomically increased. Transactions such as remittances that used to take days can now be completed within few seconds using Blockchain technology.

And last, the Robo Advisors that use complex computer algorithms are going to replace human financial advisors to provide unbiased financial advice at much lower cost.

Banks must reinvent, why?

Retail banks are facing difficult times. They may soon disappear as technology players are catching up fast and challenging their very existence. Tech Startups are building advance business models that are difficult for banks to imitate and follow at such rapid pace.

It is becoming imperative for incumbent banks reinvent themselves digitally, otherwise, they may have a hard time building relationship with the next generation of consumers, risk losing their market share and becoming obsolete.

This tipping point, on the other hand, provides a huge opportunity for growth to banks, provided they relentlessly innovate to offer better online experiences to the customers with product offerings tailored to their needs.

Digital transformation initiatives should be taken at banks to move quickly like startups do. First, banks need to adopt agile mindset to build digital solutions faster for their customers. By promoting lean learning culture, they can test to refine the customer experience, have faster product iteration, resulting in better product-market fit.

Second, they need to extend their existing technology capabilities and go all digital. They may be using technology for work-flows, internal operations, but most of them still send/receive documentation by paper or fax for account opening, loan and credit card applications.

An alternate approach to this — customers can use smart devices, from opening an account and paying bills to investing in their preferred financial instrument without even stepping inside a physical branch.

FinTechs and Banks Need to Collaborate

The primary goal of FinTechs was to solve the banking sector problems by focusing on providing a seamless digital customer experience, streamlining operational processes, and offering innovative products and services in lending, payments, wealth management, and remittance to customers. The collaboration between Banks and FinTechs can bring immense value to both parties.

FinTechs are technology focused. They are not constrained by any bulky legacy banking system. They can add agility to ideas/technology implementations at banks and can help increase their product and service offerings.

Whereas, banks are risk-averse and usually move slowly due to the highly-regulated environment. However, they can provide FinTechs their industry expertise – operations, legal, risk and access to their Banking Systems Infrastructure.

Though banks have been reluctant, some of them have been offering APIs for FinTechs to provide a wide range of products and services to their customers. Moreover, regulations such as Payment Services Directives (PSD2) are compelling banks to open-up to third parties and bring more transparency in the system.

Overall, banks are bringing the barriers down and allowing entry for FinTechs and providing them access to the huge customer base, which otherwise would take them longer time to build.

The Future of the Industry

The banking industry will continue to remain highly competitive where an increasing number of FinTech entrants will bring creative banking solutions for the customers and earn profits. It is quite possible that some of the traditional banks won’t be able to adapt to this changing industry. Unfortunately, this might either lead to collapse of a few banks or force them to radically change their business models.

The collaboration between Banks and FinTechs will be the key to shaping the future of the financial services ecosystem. Industry players who relentlessly innovate to provide frictionless digital customer experience while providing personalized products and services faster will be able to sustain longer in this constantly evolving landscape.

About Xebia

Xebia, a niche agile software development and digital consulting firm has teamed up with highly qualified partners to implement digital banking solutions for banks and financial organizations globally. We have a Center of Excellence (COE) dedicated to providing state-of-the-art Omni-Channel Digital Banking Solutions. Our mission is to help financial clients succeed in their digital transformation so that they can not only survive, but also thrive in today’s highly competitive landscape.


[1] Broeders, Henk, and Somesh Khann “Strategic choices for banks in the digital age” Mckinsey & Company, Mckinsey, 2015.
[2] Chishti, Susanne, and Janos Barberis. The FINTECH Book. John Wiley & Sons, 2016.
[3] Rubini, Agustin. Fintech in a Flash: Financial Technology Made Easy. Simtac Ltd, 2017.

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