Fintech Speed: Why Banks Should Rethink the Way They Compete with Fintechs

February 28, 2019 by Apiture

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Fintech Speed

The team at Apiture recently started using the term “fintech speed” to define the value we aim to bring to the financial institutions we serve. To us, it was the perfect description of how banks and credit unions should start thinking about the technology and partners they work with. As we began to use this phrase in conversations and marketing, it begged the question, what does fintech speed mean to you, the financial institution?  At Apiture, we see the opportunity of operating at fintech speed as the freedom to innovate without barriers.

Most bank and credit union leaders are spending 75 to 80 percent of their resources maintaining the legacy systems that their existing technology is built on. The use of legacy technology is not only slowing banks down, it’s also costing institutions more than they may even realize.

I recently met with the founder of a growing financial technology company that was built on modern infrastructure. Building a company on the cloud took only 10 percent of the investment from what would traditionally cost tens–if not hundreds of thousands–of dollars. The cloud, combined with API technologies, has made it possible to not only save money while starting a company, but to also save time thanks to the built-in efficiencies the cloud infrastructure offers. This net-gain allows bank leaders to spend 100 percent of their time innovating and discovering new ways to meet their customer’s needs.

Understanding the “how” to beat the “what”

The best examples of companies accelerating innovation are ones that many banks and credit unions consider their competition. Companies like Venmo, Square and Stripe are filling important gaps in the market, and they’re doing it by providing unbelievably easy and specific services to their customers.

This past Christmas, I needed to pay my brother back for the joint gift he purchased for our parents. We’re both members of the same bank, so we started there, believing it would be the simplest way to send and receive a person-to-person (P2P) payment. After spending a few minutes trying to figure out our bank’s payment platform, we decided to just use Venmo—which took less than 30 seconds.

This is not to say that Venmo is the best company in the world at processing person-to-person payments–in fact, that’s likely not the case. They definitely don’t know quite as much about the payment needs of myself or my brother, as say, our bank does. Venmo, however, along with other leading fintech companies, are solving very specific customer problems very well–and they’re doing it with no distractions or tech debt to hold them back.

Rather than focusing on beating the competition by providing a better point solution, financial institutions should instead put their efforts into operating more like companies such as Venmo, Stripe and Square. They can do this by updating legacy technology to a cloud interface, then detaching from partners that keep them tied to old technology. By connecting with companies that offer the most modern infrastructure and use an API-first mentality, you can create an ecosystem where you own the relationship with fintech partners, as opposed to working against them.

This is how we believe you can innovate at fintech speed. It’s crucial for financial institutions like yours to operate like and alongside fintechs to create the experience your customers want and need.

The opportunity

Financial institutions face challenges on two fronts: increased competition and outdated technology.

Most banks are not only competing with top banks who already have a majority of market share, but they’re also competing with rising fintech companies who are quickly gaining traction in the market. Once the fintech companies expand, they will begin to encroach on the existing client base of the banks, both large and small. Take Robinhood, for example, who recently tried to expand into high-yield checking accounts from their brokerage platform. Even though their venture took an unsuccessful turn, it represents a roadmap that other companies are likely planning to follow.

So, why are many banks still on technology from the eighties and nineties? The short answer is that there hasn’t been cloud-based alternative worth going through the pain of converting from one system to another. However, now the cloud provides a dramatic lift in operational efficiency to make the move. The early adopters of the cloud are taking advantage and moving faster than ever, and those that do not convert will be left behind and out of business.

Innovation at fintech speed is more than just a catchy slogan. It’s an important turn for the future of financial institutions. Until now, there hasn’t been an alternative worth the conversion pain that’s good enough of an improvement to make the leap. Apiture’s cloud-based, API-first ecosystem is.

Apiture is your solution to help address the banking technology dinosaurs and the status quo. Let’s work together to design your financial institution of the future. Connect with our team today to learn more.