4 minute read

Digital finance: Traditional banking goes down a non-traditional path

Tuesday, March 12, 2024

4 Minute Read

Customer behavior was forever changed by the COVID pandemic, and the banking experience was no exception. Contactless payments became a priority to manage finances, causing fintechs and banks to invest in technology that is steering a digital transformation.

“Looking back over the last three years you can see the changes in customer behavior,” said Danielle Rigsby, VP of Product Management at TSYS, a Global Payments company. “For example, my parents bank online, they do mobile deposits and they do not go into a physical bank.”

The convenience of banking anywhere at any time—such as paying bills and making deposits on one’s phone or computer—has led to a roughly 54% increase in mobile banking transactions. Plus, 8 in 10 consumers now use digital products to manage their finances while businesses use the technology to streamline financial operations and ensure better upkeep of IT.

This shift has led to rising costs and expectations around banking digitization. With banks spending an average of $378 million per year on their digital transformation, there is pressure on all financial institutions to deliver innovative solutions faster to market.

How can financial institutions continue to help drive customer loyalty and offerings amid all the industry changes?

The importance of bank-fintech partnerships

Fintechs may have the technology to solve speed to market problems, but banks have the customers and capital. Banks also provide backend compliance, infrastructure, knowledge, and regulatory controls. Collaborating to drive innovation to market is not new, as 95% of banks work with a fintech partner to enhance digital products and reach.

What is new are the challenges they face in an increasingly digital world.

of banks use partners to save money and accelerate implementation times

With ever-changing habits around payments, banks must stay ahead of competition by continuously offering products with the latest features and functionalities. Building their own solutions is expensive and time consuming, which is why many prefer to work with fintechs.

In fact, according to Gartner, there are an average of 9.4 fintech partners per bank.

For example, a bank needs an in-app provisioning to a wallet. The bank goes to a partner for the integration since it reduces its overhead. The partner has the integration pre-built, whereas the bank would have to start from scratch.

Another bank, meanwhile, prefers a solution with more features and functionalities, such as mobile technology that supports real-time payments. That bank works with one partner who offers a virtual card expense management solution, and another partner for authentication purposes. The result is a feature-rich solution perfect for its customers.

Fintech technology offers many benefits, including control, flexibility and usability. When using real-time data, businesses get insights to make better decisions and performance reporting that enhance operational efficiency. They can even improve security with fraud detection and customer behavior capabilities, among other areas.

Think of it as a marketplace model to pick features and functionalities that fit your business needs.

You want banking solutions that you can pull off the shelf and integrate into your own. As a consumer, you see the way you purchase items today is much less friction-filled than it was a few years ago. Those influences are what you expect out of your professional life, and have made their way into the fintech world. - Danielle RigsbyYou want banking solutions that you can pull off the shelf and integrate into your own. As a consumer, you see the way you purchase items today is much less friction-filled than it was a few years ago. Those influences are what you expect out of your professional life, and have made their way into the fintech world. - Danielle Rigsby

Plug & Play vs. Customization

Customized finance software has long been a standard for the industry.

They are often built in-house by the bank. This involves development, maintenance, testing, integration and launch of the solution — a process that can take months or years.

With digitalization and the need to get solutions to market faster, there is a pivot to out-of-the-box solutions that partners offer. The plug and play option can result in a “50 to 75 percent decrease in implementation time over customization,” said Rigsby. These advantages result in 86% of banks working with fintechs to cut costs and speed up implementation. Advantages outside of speed to market include:

  • Easier integration into your existing system
  • Faster time to revenue
  • No need to have IT involved
  • Built-in functionalities

Faster implementation times also help banks and fintechs remain competitive and relevant for the future because they can easily adjust or add to their current offerings.

“Out-of-the-box solutions put banks and fintechs in a better position, not only financially but strategically, and from a product perspective such as with future upgrades,” Rigsby said.

The influence of niche fintechs

How can a traditional FI reach multiple segments of customers?

That’s where niche fintechs come in. They focus on specific segments in the industry, often with solution features or functionalities that address a certain customer need. This makes the product more personal.

With more than 80% of young people saying personalization is a critical part of their banking experience, this presents an opportunity to target a new market.

For example, small business employees submit physical receipts into an Excel file in the office for reimbursement, which is then manually processed by other employees. With a fintech’s solution, employees can digitally submit expenses from anywhere while the approval process is done in the same system.

Another benefit of this digital transformation is the impact on sustainable finance. Institutions are prioritizing and investing in green initiatives, which includes carbon footprinting to address customers with a concern for the environment and sustainable finance.

Using the examples above, digital receipts replace paper receipts as well as provide carbon footprinting. Businesses save time and encourage sustainable, climate-conscious habits.

“By working with fintechs, traditional institutions are going down non-traditional paths to market,” Rigsby said. “Companies always need to build with the future in mind. With the shifting role of banks and fintechs plus the need for easy self-service solutions that allows solutions to market faster, the future of digital banking is already here.”

If you are interested in learning more about how innovation through enablement with TSYS can drive solutions faster to market, click here.

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