Is FinTech changing the way we bank?
By Allen Kopelman, CEO, Nationwide Payment Systems
FinTech, or Financial Technology, has become a big part of the banking and payments industries over the past decade. As digital technology continues to evolve, banking and payments sectors strive to meet consumers’ and business owners’ changing needs and expectations. Meeting personal and business needs requires different skill sets and risk management models.
As new financial services, products, and payment services enter the market, they push existing products to digital channels. The rise of digital banking and emergence of new payment methods presents opportunities and threats and the potential to improve financial inclusion.
This four-part series explores how fintech is changing the way we bank, by assessing the impact of disruptive technologies on traditional banking models, community banks, credit unions, and ATMs. We will also address challenges and risks associated with fintech, regulatory concerns, lack of oversight, cybersecurity risks, and possible job losses in the banking sector.
In Part One of this series, we look at traditional and digital banking models.
Part One: Traditional Banking Models vs. Digital Banking
The traditional banking model has been around for over 100 years, and banks provide a brick-and-mortar location for customers to come and do their banking, such as making deposits, opening accounts, getting change, withdrawing money, getting loans, and obtaining other financial services. Technology has advanced and banking has become digital, with many customers accessing bank services through mobile apps.
Digital banking has some key advantages over a traditional bank; customers no longer have to visit a branch to perform routine transactions, such as checking account balances, transferring funds, or paying bills. Instead, consumers and businesses can do many of these tasks online or through a mobile device on the fly and do it 24/7.
Digital banking and neobanks have opened up new financial products and services possibilities. There are many digital-only banks, such as Chime, Axos Bank, Aspiration, Acorns, CIT Bank, and Ally Bank, to name a few. What are neobanks? Neobanks or digital-only banks are not saddled by traditional technology and costly networks of branch locations. Instead, all banking services are done online using your computer or a mobile APP. There are two types of digital banks – one full-service offering loans, and another just focused on deposits and paying bills.
Community Banks and Credit Unions
Community banks and credit unions can play an essential role in filling in some of the voids created by traditional banks, which are closing branches and consolidating and fintechs, which offer innovative solutions but may not have longstanding customer relationships. While fintech companies offer innovative solutions, and traditional banks have a large customer base, community banks, and credit unions have other benefits that make them attractive to consumers and business owners. They can also provide a personal and local banking experience to local communities.
In addition, community banks and credit unions are smaller in size and tend to focus on serving their local communities, which allows them to forge close relationships with clients and better understand their local markets. They offer more personalized services and are more likely to make lending decisions and open accounts based on factors beyond credit scores, such as customer relationships and their contributions to the local community.
Financial institutions partnering with fintech
Now’s the time for banks, community banks, and credit unions to consider how to partner with fintech companies. Banks can use all sorts of available tools to transform traditional businesses into hybrid models.
I recently attended the Financial Brand Forum in Las Vegas in 2022, where I saw numerous products designed to help banks, including CRM, data analytics, merchant acquiring (from NPS), self-attended solutions, and more. These products can help banks keep current customers and attract new clients. They can also help banks better service their clientele by offering more loans and other financial services offerings.
With banking going thru a digital transformation – the time is now to make a bold move.
Allen Kopelman co-founded Nationwide Payment Systems Inc. in 2001, providing concierge-style credit card processing and equipment to merchants. The company quickly grew nationally, adding products and banking partnerships and becoming laser-focused on technology. As a serial entrepreneur from a family of business owners, Allen first learned about business by working behind the cash registers at his father’s Miami clothing stores. In 2021, he launched the B2B Vault: The Payment Technology Podcast, where he educates merchants, drawing from his experiences as a payments industry consultant, master chef at hotels and country clubs, and former owner of a restaurant and catering company.