In a recent article, the Financial Brand explores the lessons that fintech firms can learn from traditional banks and credit unions. The lessons cover topics such as regulatory compliance, risk management, customer trust and security, scalability, technological infrastructure, diversification of services, and the power of partnerships. The article highlights the importance of fintech companies recognizing these lessons in order to navigate the complex financial industry and foster sustainable growth, innovation, and resilience.
After a long period of rivalry, fintechs have as much to learn from banks as banks can learn from fintechs.
Summary
Traditional banks and fintechs can learn valuable lessons from each other, according to an article from the Financial Brand. Fintech companies can benefit from recognizing the significance of regulatory compliance, risk management, customer trust and security, scalability, technological infrastructure, diversification of services, and the power of partnerships.
The first lesson focuses on the importance of understanding and complying with regulatory requirements. The article provides the example of a fintech firm that was fined by the SEC due to misleading investors with hypothetical performance metrics. Hiring compliance experts or consulting with banking attorneys and compliance consultants can help fintech firms ensure compliance.
Managing credit and operational risk is vital for sustainable growth. Fintech firms can learn from banks’ well-proven credit risk practices. The article highlights the example of a fintech firm that stopped doing business due to credit issues, new regulatory requirements, and a drought in venture capital funding.
Customer trust is another important lesson for fintech firms. Customers trust banks to keep their funds safe, and fintech customers expect the same level of perceived security. Data breaches at traditional banks have not resulted in significant customer loss, showing the importance of the perceived security of funds.
Scalability and sustainability are key for long-term success. Banks have perfected the art of scalability, and fintech firms can benefit from learning how to scale and remain stable. The article mentions the example of a fintech firm that misjudged risk management and compliance, resulting in credit issues and the company ceasing operations.
Having a reliable and scalable technological infrastructure is essential for fintech firms. While legacy banks may have technical debt due to outdated infrastructure and legacy systems, fintech firms can learn from banks’ ability to thrive despite limitations. Core systems, for example, are necessary for a bank-like experience that cannot be managed on simple databases.
Diversification of financial services is important to meet the needs of a broad customer base. Fintech firms can learn from examples like SoFi, which initially offered student loans but diversified and positioned itself as a full-fledged bank.
Partnering and collaborating with other industry players, including traditional banks, can open avenues for growth and innovation. Collaboration by successful banks can translate to growth and sustainability for fintech firms. The article highlights the example of a fintech firm that pivoted to a B2B-only service for banks, capitalizing on its core competency in digital banking experiences.
By combining fintech agility and innovation with the stability and experience of traditional banking, firms can create a well-rounded approach that benefits both the business and its customers. Collaboration and integration of best practices from both types of organizations will shape the future of financial services.
