wvbankers.org 20 West Virginia Banker Five Ways Banks Can Compete with Fintech Startups By Nicholas P. Mooney II, Spilman Thomas & Battle PLLC Readers of West Virginia Banker magazine likely are familiar with the term “fintech,” but for the uninitiated, “fintech” is the combination of the words “financial” and “technology.” It generally refers to a piece of technology that automates or improves the delivery of financial products by traditional financial institutions or their use by customers. An example of this is the implementation of digital lending into a bank’s services. The term also is used to refer to a specific type of entity that integrates technology as a core feature of its delivery of financial products. Examples of this are PayPal, Stripe, and Robinhood. Investments in fintech have been on the rise in recent years. In 2018, $128 billion was invested globally into fintech, which is predicted to be $310 billion in 2022. In addition to investments, customers are not shy about using a fintech company for their banking services. One recent study reported that 30% of respondents had used a digital-only bank in the past or expected to use one in the future. Further, 9% said that they planned to open a bank account with a fintech company in the near future. In addition, the COVID-19 pandemic increased consumers’ desire to conduct their daily lives without the necessity of physical contact. This preference forced small businesses to adopt digital payment options. VISA’s 2022 Back to Business Survey reports that 41% of consumers already operate without cash or will make that change within the next two years. Similar things are being said about the change fintech is bringing to traditional banking. Consumers value the convenience of being able to conduct banking 24/7 and to open an account remotely. They argue that fintechs offer less expensive services and more user-friendly experiences. Does this mean fintechs will replace banks? No. Banks have many benefits over fintechs. Although fintechs are seen as more nimble, they also are considered riskier than banks. Furthermore, fintechs sometimes lack the long-term relationship banks already enjoy with their customers. Those relationships can reduce the likelihood that a customer will leave for a fintech and also give the bank a trove of information to help customize their user experiences. Below are five ways banks can compete with fintechs. 1. Modernize and digitize core products and functions. A bank can work to modernize and digitize its core products and functions in many ways, such as focusing on its mobile app. Most banks have some internet
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