2022’s FinTech battle will be infrastructure-focused

FinTechs have one main advantage in the market - flexibility. They have been able to move quickly to develop new features and roll them out before traditional banks could. Now however, we see traditional banks rolling out those same features.

In 2022, the winners will be those with the infrastructure clout to seize new opportunities ahead.

The challenge for FinTechs is how do they keep innovating, they’ll lose some of their competitive advantage if they can’t maintain the same level of feature development as before. The challenge for traditional banks is that it’s taken them a long time to get here - they couldn’t respond to the challenge as soon as it happened. 

But the game isn’t over for banks. There’s plenty that traditional players in the financial world can, and must, learn from newer FinTechs if they want to keep pace with market changes and ultimately maintain and grow their market shares.

So, what will it take for Europe’s banks to rise to the FinTech challenge?

Get to know what your customers want, not just what they need

While the core infrastructure helped banks keep on top of the day to day challenges in the pandemic, many senior teams will be left wondering what they could have done differently had there been better infrastructure in place. 

Customers needed new and different types of products more than ever. They needed protection from increased online fraud. Businesses needed to change how they operated and collected payments. In general, banks were positioned to survive, not thrive going into the pandemic. That could cost them customer loyalty, and ultimately revenue if left unchanged.

The pandemic has compounded this change. Many of those who were reluctant to bank online or use contactless payments instead of cash have found themselves with little choice but to do so since March 2020. While a small proportion of users may return to their pre-pandemic habits, the majority will not.

The success of challenger banks has been fuelled by changing expectations of a new generation of end-users. With more trust placed in the internet, digital only offerings have been able to flourish. Ultimately banks need to figure out how to meet the needs and wants of a younger tech-savvy generation. That means providing tech-first products that younger generations want to use.

Play to your advantages 

The advantage of FinTechs is that they have flexibility, they appear to move quickly to develop new features. The way for traditional institutions to take this on is to introduce similar degrees of agility in order to give options to customers who don’t like the pared-back experience of digital banks but feel traditional banks don’t understand their needs either. 

The traditional bank carries with it a certain amount of baggage, but most of that baggage is good baggage - it’s stability, security and market knowledge - focusing these factors on customers will be a winning combination. 

This is an area where banks already excel. Data, customers and capital to fund payments projects are already there, whereas FinTechs have to build from the ground up.

The FinTech battle is far from over - it’s barely started. Whether your strategy as a financial institution is to be proactive and aim to beat the FinTechs at their own game, or whether you are reactive and want to move second, there’s still a lot of time left on the clock.

Understand the overarching threat 

Inertia is the biggest challenge facing the industry. Many financial institutions face a structural problem in how they react to change. Short-term safety often wins, but it builds a bigger stack of challenges which could fall later.

When a bank’s technology fails, the first repercussion is that it makes headline news. The second is that the regulator gets involved. Combined, the bank could face fines, fees and a badly damaged reputation. The desire to avoid this scenario at all costs drives a lot of technology decisions in the financial space. Unfortunately in the long term, it’s more likely to create problems than it is to solve them. 

On top of that, when you have an outdated payments system you're constraining your ability to react to the marketplace and take advantage of opportunity, and perhaps even defend yourself against a FinTech threat as well. 

Banks which have been in business for a hundred or more years have huge technology systems and processes in place. Compare that to the experience of Eastern European banks after the fall of the Soviet Union, and you had a market where decisions and implementations rapidly outpaced their Western European counterparts.