Banks all over the world are struggling to collaborate with fintech startups. These new up-and-coming companies have the power to make banks lose control over digital payments in the coming years. A new report by the Boston Consulting Group has warned financial institutions of this impending change. Although Bitcoin is not mentioned specifically, some of the bullet points are telling an interesting story.
Digital payments are, for most banks, another way to tie customers to their brand. But the report by Boston Consulting Group goes to show digital payments are about so much more than ‘pure payments”. In fact, banks need to come up with a way to minimize the complexity of their systems, while still providing top-notch security standards.
Banks Need To Step Up or Shut Up
Transactional banking is coming to change, and financial players may be all but too late to go with the flow. The reason why fintech-based digital payments are taking off is that they are not limited to just one or a few banks. Instead, most solutions let anyone send payments nationwide, or in some cases, even worldwide. For now, banks cannot compete with this new ecosystem, as they are entrenched in limited accessibility due to regulations and competition.
In fact, the majority of banks in the world today are still providing a very poor customer experience. This is part of the reason why the payment sector has been ripe for disruption since the financial crisis. With the payments industry representing nearly 30% of global banking revenues, losing out on this market would be a significant blow to financial institutions worldwide.
Mapping out “diverse scenarios,” as BCG’s Stefan Dab stated, should be of the highest priority to any bank right now. This does not only include improving their services but also striking strategic partnerships with Fintech companies. While this trend has already started to take place, there is much work left to be done.
At the same time, the competition continues to heat up, with Bitcoin gaining more momentum all over the world. Competition in the payments industry will not only come from traditional or fintech offerings. Alternative finance is a booming market, and should not be overlooked.
It’s hard to partner with a company or person who may become a competitor in the long run. At the same time, collaborating with the “enemy” is the lesser of two evils for banks right now. Things are coming to change, and a new era of payments will be created, with or without the banks playing a role of importance in that scenario.
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