Fintechs are seen as disruptors to traditional banks, but the potential of the question they are asking has far deeper implications for the financial sector.

Arguably, the idea that fintechs are looking to play in big banks’ domain misses the point. Their business is in solving experiential problems in banking, smoothing access to services and acting as a platform to other providers. (For more, read WARC’s in-depth report: Why fintechs are developing a platform strategy)

Disruption is probably an over-used word, especially when there are apps involved. In finance, challenger banks – as fintechs are also known – are typically lightweight, free of physical infrastructure and legacy systems.

Many fintechs, meanwhile, are not banks in the strictest definition. Instead, the most popular based on the reasons for most people’s common interactions with their banks: namely payments and current account balance checking. In these key spaces, fintechs have excelled because they treat these as UX problems.

Traditional banks’ apps are getting better but have typically been bogged down in layers of security, minimal functionality, and generally feeling about five years behind the rest of the phone.

Yet some industry insiders believe that big banks’ sloth in developing better products is misplaced. “I don’t think legacy systems are actually a problem. Legacy systems are the new regulation,” argued Jason Maude, head of tech advocacy at the fintech Starling Bank.

The difference between the traditional and challenger banks hinges on a focus at the top of the company. Silicon Valley Bank’s Sonia Iovieno, head of accelerator and growth, argues that the difference between disruptive and non-disruptive firms is, in essence, whether there is a focus on a functioning, up to date tech ecosystem that makes life better for customers. “It has to be at the core of what you do, no matter what business you’re in.”

Much of the conversation around challenger banks/fintechs revolves around how big companies – whether in finance or other sectors – can ride their coat tails. But beware culture clash; the layers of governance, arcane processes, and sheer size could well undo the qualities that made challengers interesting in the first place.

In the case of insurance, fintechs have carved a niche that brings firms access to their customers by removing friction. In the case of Starling Bank, a partnership with Direct Line Group’s home insurance division, Churchill, lets customers apply for coverage in-app. Meanwhile, Revolut offers a one-step process to buy travel insurance for a low-rate using your phone’s geolocation function. Though the providers lose some visibility, it points to a direction of travel for the industry: fintechs attract customers with great products and build a business off access to happy customers.

Sourced from WARC