Fintech is undoubtedly driving the digital transformation of the financial sector – only recently have banks begun tailoring for modern consumers. Many banks have turned to fintech firms for advice or to use their services and the continuous development battle has only pushed expectations within the financial services industry higher.
PaymentExpert spoke with Alex Shvarts, CTO of FundKite, a fintech company in New York that provides funding to small businesses across the US, on these relationships and what the future holds.
PE: What is the way forward for banks in the digital age – collaborate or innovate alone?
AS: Banks are finally pushing to innovate, often doing so alone but by copying the digital based fintech industry. Fintech is already built with a digital infrastructure, customer first focus, ability for speed of action and very importantly a mind for innovation.
Banks aren’t able to create programs to immediately respond to clients’ needs like fintech companies are. Fintech streamlines complex financial processes, making it more accessible – forcing the sluggish bank system to react.
Banks are picking up their pace and beginning to offer new programs. Right now, banks and fintech are sticking to their own niches of long term loans and short term funding, but as the industries change, we could see a merge into each other’s markets.
No matter what, the consumer is the focus and will come out winning.
PE: Why should banks and fintech companies work together more frequently?
AS: Fintech funds, banks loan. The two industries offer different yet similar products. So what if a fintech company wants to issue a loan? They partner with a bank to use their own name and clients with the bank’s money and extended terms.
Fintech can also work with credit card companies to offer a revolving line of credit to merchants. With the consumer as the focus, financial companies will increasingly partner up to offer their clients the best, most competitive programs on the market.
When the 2008 financial crisis caused by banks opened up the market, Fintech swept in and is now expanding on a global level. If you can’t beat ‘em, join ‘em. By collaborating, powerful banks and agile fintech firms are creating one entity that is a stronger combination of both units.
PE: Will there always be a need for ‘traditional’ banks and if so, how will they differ in the future?
AS: There will still be traditional banks, no doubt about consumers and businesses alike needing them, but the digital age is forcing change into every industry.
Online banking is no longer a bonus but a necessity. Consumers find it very inconvenient to have to take trips to the bank to deposit personal checks, which is why we now see mobile depositing of checks.
The same inconvenience applies to business owners’ deposits, wire transfers, international payments, online shopping and even splitting dinner with friends, hence Venmo, Paypal etc. Banks can’t be just keeping up, they need to innovate ahead of their competitors.
This financial market is already saturated with companies willing to provide numerous money and payment options. Banks need to predict their customers’ future mobile needs first.
PE: Isn’t there a risk in trusting so many ‘external companies’ in comparison to the already established traditional banks?
AS: While banks have credibility and government backed insurance, the same sovereignty that protects them restricts them. It’s best to research the online reviews of any company you work with to determine their trustworthiness.
Yes, there are fake funders, but there are also merchants scamming the funders; both parties need to be cautious and thorough when exchanging money online.
The best route is to find a funder you can build a good relationship with, that way you’ll know the process and what they need any time you’re searching for working capital.