With the rise of so-called neobanks, or digital-native financial institutions that are born out of the cloud, legacy FIs must be attuned to emerging competition set to capture the next generation of financial services consumers. Further, they must be willing to innovate, either in-house or through partnerships, to allow for existing systems to become more nimble.
Unencumbered by the antiquated technologies inherent to legacy FIs, neobanks like San Francisco-based Chime, which became the most valuable fintech startup (worth $14.5 billion) in September 2020 following its Series F, are luring young depositors away from incumbents. They’re doing this in part due to their ability to integrate enhanced analytics capabilities to offer Gen Y and Gen Z customers lower-fee and more rewarding financial products and services.
Rather than looking at companies like Chime as a threat, FIs might consider viewing this type of competition as a catalyst to innovate and to integrate API technologies in order to provide the same kind of open-banking value proposition as their next-generation competitors.
There’s no doubt that COVID-19 has highlighted the need for digitization in banking and payments. The next year presents a great opportunity for the transformation of both consumer and B2B banking. The pandemic has magnified the need for digitization in the finance ecosystem, and all these changes will soon come to light.
As the global banking sector looks to regain its footing following the uncertainties caused by the global pandemic, its key players have realized that pre-outbreak business models are a thing of the past. Indeed, the pandemic has accelerated the financial industry’s evolution into a digital-first ecosystem, with McKinsey & Co.’s May 2020
McKinsey’s report, which focuses on the European financial services industry, explains that the “crisis has upended the world in which banks operate in terms of customer behavior, ways of working, and government actions.” In consequence, the banking industry at large — both within and outside of Europe — is facing a “prolonged period of economic pressure.”
What innovations do you expect to see this coming year?
