Fintech startups and incumbent financial institutions have a complicated relationship. Sometimes they are friends, and occasionally they are foes.
Thanks to rapid mass adoption, fintechs have been able to hit incumbents where it hurts most: their revenue. As illustrated, bank executives in the UK expect tech companies to eat their lunch in the coming years. Predicting a 40% profit loss in payments, consumer finance, small business lending, mortgages, and wealth management.
Recognizing the unstoppable rise of fintechs, traditional financial institutions have started embracing innovation. Tech companies and incumbents have begun working together in key initiatives. An excellent example of this is open banking.
Some of the most generous fintech investors today are actually major-league players in the financial services industry. Some of which are UBS AG and Sumitomo Mitsui Financial Group. While most UK financial ventures look forward to strategically collaborating with fintechs, some of them are considering outright acquiring upstart tech firms.
Fintech as a Threat
Bankers often perceive fintechs as a significant threat to their business. Now they have woken up to the reality that they can’t live without them. Incumbents understand that they can’t efficiently comply with government requirements without regulatory technology (regtech).
Traditional financial institutions have been aggressively adopting fresh business models like peer-to-peer lending, cryptocurrencies, and digital authentication methods, but regulation has been hampering their rate of innovation.
Incumbents chiefly rely on regtech to navigate through complex government processes and they employ effective risk aversion strategies to overcome regulatory hurdles. Among other things, fintechs, like Percentile, are pushing the limits of automation through the use of artificial intelligence and machine learning to help banks cope with the ever-evolving, global rules and regulations.
Regtech is the ultimate proof that fintechs and incumbents can coexist in harmony. To explore the sometimes thorny, sometimes symbiotic relationship of these competitors even further, check out the infographic below!
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