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Why Fintech Apps Are the Future of Banking

Why Fintech Apps Are the Future of Banking

Fintech companies are steadily taking over the financial sector, while  traditional banking is on the decline. There are many reasons for this, including the stagnating banking systems in many countries with monopolistic traits that don’t push banks towards any revolutionary business decisions. Fintech companies embrace new technologies that promote connectivity, a high-quality user experience and allow people to exploit financial globalization.

Apps play an important role in this take-over. In fact, apps are among the main tools for fintech companies in our increasingly mobile world where we’ll have another 500 million smartphone users by 2020.

Number of smartphone users worldwide from 2014 to 2020 (in billions)

Many banks can’t catch up because of the variety of fintech companies that started out as mobile-first and as a result, are more prepared for the mobile market.

Let’s find out how and why fintech companies are steadily gaining ground in many of the financial and banking sectors of the global economy and how apps are helping them.

Transcendent

Transcendent

Banks are very limited in the ways they can combine and simplify user experiences for their customers. There are regulations, competitors, stakeholders and many other factors that limit traditional banking institutions in their ability to create radically new and highly productive user experiences.

On the other side, we have apps like Curve – a very promising startup that allows you to save various card details onto your smartphone and tie them to a single Curve card. You can use the phone app to switch between the saved cards and the Curve card will automatically become the specific card that you picked. Or take a look at CrowdCube, which allows you to crowdfund investment opportunities, all through your smartphone.

Can you imagine a bank coming up with something like this? It’s highly unlikely because brokering a deal like this with other banks or financial institutions would take too much time and effort. While fintech companies, unhindered by market rules and regulations, focus only on what’s important for the customers.

They transcend the  traditional boundaries of banking and create new experiences. Banks would need to evolve, while fintech companies were ‘born this way’.

Focus

Focus

Banking apps have to be complex by nature: how would you like it if you had to download one app to check your balance and another to send money from the same account? Fintech companies don’t have these limitations. They often emerge as a single-purpose tool, which later grows into something more complex and diversified or just take a firmer grasp on their initial specialization. For example, ClearScore allows you to check your credit score, based on your actual financial data.

Globalization

Globalization

The global economy serves as the ideal ecosystem for many fintech companies. You don’t take your bank to another country, but you do take your smartphone with you. And that’s what fintech companies embrace: flexibility. The flexibility of app ecosystems works for fintech companies, while banks don’t see beyond their sphere of influence.

Take Revolut – a highly globalized banking app that allows you to hold multiple accounts in multiple currencies, and switch seamlessly between them while paying less for transaction costs. Banks would like to do that for you too, but they’d also love to charge you more for those services.

While fintech companies are not charitable organizations, they’re still more democratic in terms of pricing. They also don’t have the same amount of assets to deal with. Plus, modern computing capabilities allow a really small and tight group of employees to run the app from behind the scenes. This, combined with less restrictions, allows fintech apps to really globalize the way people spend money both on and offline. This brings us to the next point.

Convenience

Convenience

Building an app for a bank is a pretty significant project. One of the biggest challenges may be the fact that the bank has to properly connect its backend to the frontend of the app. With the size of the infrastructure and its complexity, some banks go for a compromise between the quality and the effectiveness of this merger.

Fintech companies don’t have to do that, they’re built as a counterweight to banks right off the bat. Apps are leading that front, with fintech companies winning over customers with their apps’ convenience.

Their backend probably started as a one that’s built around an app, so they have an easier time making changes, tweaks and generally making sure that the app is incredibly convenient and efficient. That’s why fintech apps usually have better ratings compared to apps by banking institutions:

Fintech apps usually have better ratings compared to apps by banking institutions

As banks try to catch up, and as app development costs skyrocket even further, you can be sure that this gap will only keep growing.

Empowerment

Fintech apps are really pushing the boundaries of what it means to enhance user experience. As we established before, their differentiation is what allows them to compete with banks. This differentiation also allows them to not carry the same reputational burden as traditional banks, which results in a lot more flexibility and options.

We’re sure that you won’t be able to name a decent number of banks that are willing to work with Bitcoin. This cryptocurrency is risky business and that’s why many banks stay away from it. At the same time, apps like Coinsbank facilitate Bitcoin trade and help you get your finances organized, empowering you to become more financially independent from your location and any banking institution.

Conclusion

Fintech apps hold a number of advantages over apps created by traditional banks. This allows them to innovate and push the boundaries of what’s acceptable and doable for a financial or a banking service. That’s why banks with huge infrastructures can’t keep up with the growth of the fintech niche. Fintech startups provide the much needed innovation that traditional banking has lacked for a while.

Adriana Blum

  • Mandy Baker

    Some banks in my area are attempting to lure millennials in with fintech-like services but it’s really not the same since as you mentioned the banks are encumbered by regulations that fintechs aren’t.
    I’m all for disruptors. I think it forces change and is better for the customer (read: me) in the long run. I use a fintech app and you just can’t beat the convenience that their mobile platforms offer.

  • Masha Marinina

    Traditional banks are becoming irrelevant. They have managed to engineer this themselves to a great extent, by resisting change. The burden of regulation and compliance is often given as an excuse for why banks find it so difficult to change, but it is not really valid. The regulatory restrictions are measuring risk, which is what banks should be doing anyway. The only problem with fintech options is that they are limited in their service offerings, and one still has to go to conventional banks for instruments such as mortgage loans, but this will change with time.
    With respect to bitcoin, traditional banks are all sticking their toes in the water, but more as a “special project”, rather than a true strategy. The financial institutions that are getting stuck in there are clearing houses and depositories that manage the flow of funds. They will be ready well in advance of their customers, the banks.