The financial services industry is changing rapidly. Due to the surge of technology, new ways of managing finances and running traditional banks are being exercised. The new era of banking is in transition and there is an exciting movement developing. But how did this come to be a reality?
A New Found Relationship
Today’s banking is heavily focused on innovation. Financial technology is now very relevant and has opened up opportunities for many challenger banks. As an effect of this more and more traditional consumers having a relationship with at least one neobank. This has stirred things up for traditional banks, who are falling behind, as they can no longer afford to see FinTech firms as threats, but more as potential collaborators.
So how do traditional banks and FinTechs work together? Well, the key to this modern collaboration is Application Programming Interfaces (API). Although innovative, APIs are not new to banking at all. It simply allows for the two collaborator’s IT systems to interact by sharing customers financial data. This has sparked the movement to what is considered the new era of banking practice. And the best part is that customers have more control than ever! They are now able to access multiple bank accounts and transactional data all on one platform, giving them an easier tool for financial planning. Most importantly, all of these actions occur securely thanks to the strong security of API. To summarise, APIs allow for a more efficient banking experience for our users, combining the benefits of traditional banking with innovate technology.
Investment, Acquisition and The Future
But why should banks and FinTechs help each other? Essentially, traditional banks have spent years building a relationship of trust with their customers, whilst challenger banks bring in exciting innovation. Combining the two is the holy grail of modern banking.
Challenger banks aren’t burdened by outdated IT systems and infrastructure therefore they are able to offer innovative solutions for long lasting problems traditional banks haven’t been able to solve. Challenger banks can additionally be more dynamic and tailor their banking interface to the current market trends or consumer demands.
As traditional banks are now seeing the benefits of working with promising FinTechs, they are now actively looking to invest where they see opportunity.
A unique acquisition occurred recently when a challenger bank, Tandem, secured the struggling Harrods bank. This deal saw the challenger bank purchase a traditional bank in order to obtain their banking license, which was not usual but very successful. They have recently go on to hit 500,000 users after just one year in operation and are setting their sights on profits for the 2020 calendar year. Proving well and truly that this relationship is dynamic and can function in many different ways.
Overall, it is evident that the future of banking is focused on the growth of technology. FinTechs are taking control and have the opportunity to reinvent the way people manage their finances. Moreover, the benefits of this opportunity will only be realised by building stronger relations with traditional banks, either through collaboration or investments.
- Aaryaman Carlra
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