Banks rival FinTech growth with digital-only offerings

While FinTech companies head towards profitability and experience double-digit growth, traditional banks are creating digital-only opportunities to stay competitive, according to research from Capgemini.

Despite a volatile year, in 2020 the FinTech sector saw deal activity growth of 11 per cent in the final quarter, following four consecutive years of decline.

As these emerging businesses mature, they are winning more and more investor backing. The report found that there was a 9 per cent increase in deal activity across late-stage FinTechs from 2019 to 2020.

But more than half of FinTechs expect their capital reserves to be affected as costs related to staffing, onboarding, and data storage surged during pandemic lockdowns.

In response to the growth of the FinTech market, incumbents are creating digital-only entities to appeal to specific customer segments.

Of the banking executives surveyed in the study, 63 per cent said a digital-only subsidiary enables ubiquitous banking.

A further 50 per cent said digital offerings drive new products to market faster, while 52 per cent believe they make collaboration easier thanks to plug-and-play functionality.

The shift to digital over the past 18 months has placed FinTechs in the perfect position to capture market share, but consumers still trust traditional banks.

68 per cent of those surveyed said that they would try a digital-only offering operated by their primary bank.

As well as facing the challenge to stay competitive in an expanding and more competitive financial services market, traditional banks are experiencing additional regulatory and societal pressure to move toward more green and sustainable practices.

According to the research 65 per cent of consumers globally want banks to reduce their carbon footprint by following paperless processes, consuming renewable energy, and offering biodegradable cards.

“FinTech-inspired digital journeys need to become crucial strategic paths for banks across the board,” said Anirban Bose, chief executive of Capgemini financial services and member of the group executive board. “However, players need to be sharp and specific as they move. There is no one-size-fits-all approach, and banks cannot create all digital subsidiaries equally.”

Bose added: "Players capable of achieving long-term growth and profitability today will be tomorrow’s FinTech-era success stories.”

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