For years, banks have traditionally controlled every data regarding their customer’s finances, but that is soon to change. Under the new Payment directive, banks are required to make available to third parties the data of their customers albeit on the request of their customers. This will mean that customers can now direct their banks to make available their financial data to Fintech companies. The customer may do this to get more financial advice or just to explore their options.
This is a new direction in the banking industry with a new competitor that is entirely different from its usual competitors. Although everyone may prefer little or no competition, there are a lot of reasons why banks should not fear this new rather directive, rather banks should embrace it.
Presently some Fintech companies offer some services that are not so easy to access in most traditional banks. One of such services is access to loans. Based on this some persons may feel that there may be a massive exodus from traditional banks. That does not have to be the case. For one reason, most banks can choose to adapt quickly in providing enabling platforms for various Fintech companies. If they do this they can continue to thrive.
Why will it make sense for a bank to do this? The banks already have a huge customer base (big banks) and they can use this to their advantage. The Fintech companies need customers and the more customers you have the more attractive you are to Fintech companies. On the other hand, Fintech companies will not be psyched to partner with a bank that is aggressive towards them. Banks can make their platform accessible to as many Fintech companies; this will present their customers with a lot of options. The more options they have it is possible they will be more satisfied with the bank’s services. A big bank has the customer base and has the leverage so why throw all that away in a needless competition with a Fintech company?
Another plus for banks in Europe is that the financial world and the technological world have not been too far apart. There have interactions between the two sectors and in London; this interaction has led to positive interaction between the two sectors. This will greatly help the collaboration between the banks and the Fintech companies.
Still, the partnership has some perceived risks: the problem of security. Will the platforms be secure enough for their customers? Although banks have been victims of cyber attacks, the customers are secured because the banks have deep pockets to take care of such events. The same cannot be said of fintech companies. Although this is a perceived risk, it can be seen as another reason to favor collaboration between the two entities. Banks can also ensure that they only consider well-established Fintech companies.
Banks will have to focus more on long-term benefits in collaborating with Fintech companies. Instead of focusing on where the next profit comes from, the banks can focus on building a network. The more elaborate the bank’s platform is, the more Fintech companies the platform will attract. In the long run, the bank will see their profit. How is this possible? The more Fintech companies on the platform, the more customers will patronize such platform.