Fintechs continue to eye growth and go “mainstream” by utilizing the financial and regulatory infrastructure from more traditional and legacy banks. However, Reuters reported that the U.S. Central Bank and the Federal Reserve worry about sharing this infrastructure with FinTechs such as OnDeck Capital and Kabbage because the partnership places the bank “at odds with other regulators looking to bring [those firms] into the fold.” According to the Fed, there aren’t enough protocols around risk management in place yet to give FinTechs comprehensive access to payment systems and transaction settlements. In fact, St. Louis Fed President James Bullard was quoted telling Reuters that FinTechs, “probably do want access to the payments system, but they don’t want the regulation that would come with that access. I am concerned that FinTech will be the source of the next crisis.” Yet, legacy banks are feeling the pinch of the FinTech threat.
Traditional banks struggle to meet the demands of the digital era
Banks have their own strengths, including being in the business for centuries and having associations with and access to customers and their data. But they are hamstrung by legacy systems, stifling regulations, and an inability to explore the true potential of emerging technologies due to lack of expertise and cultural inertia regarding change.Invariably, legacy banks do have their share of dominating strengths such as some being in this industry for centuries along with their access to clients and customer data. Unfortunately, they are also befuddled with a highly-regulated environment, legacy systems, and the lack of necessary expertise to advance their businesses using the latest technologies and digital platforms. As a result, they are hamstrung with inefficient and time-consuming processes which increase the costs of doing business and negatively impact the customer experience. In addition, the lack of innovation puts them behind FinTechs who are driven to capture the hearts and minds of tech-savvy customers with new products and services fueled by the inevitable power of automation. Unquestionably, FinTechs have made their presence known and many have a gaggle of celebrity investors who only add to the allure of “disrupting” traditional banking.
