This article is published in collaboration with the Digital Transformation and AI Awards and Summit. These are two separate B2B events organised by 31 Media. If you wish to exhibit your tech solutions or to advertise your brand at the event, please get in touch at +44 (0)203 931 5827. In this article, you’ll learn how FinTech is reshaping the future of finance with digital transformation.

Author: Donat Husjainov, CPO at XData Group

The world of finance has always been complex and, at times, inaccessible to many. When fintech made its entrance on this scene, it quickly became a driver of change, breaking down barriers and reshaping how people approached financial services. Although it was not taken seriously at the beginning, the sector continued to evolve at an astonishing pace, and by 2023, the global fintech market was valued at $295 billion. 

Well-known brands like Revolut, N26, Wise, and Klarna are rapidly gaining ground in the fields that were once monopolised by traditional banks and financial institutions. According to PwC, even back in 2017, almost 90% of insurers, investment managers and banks worldwide were worried about losing revenue to the more innovative newcomers.

The Impact of Fintech on Traditional Banking

The rapid growth of fintech has resulted in banks feeling a sharp need to evolve and change their services if they want to stay competitive. Today, many large banking organisations recognise fintech companies when conducting competitive analysis and strategic planning.

When various fintechs started gaining banking licenses in recent years, it became a key turning point. This transition meant that relative newcomers could compete more directly against the established players in the financial landscape. Instead of just facilitating transactions as they had in the beginning, fintech could now offer a full suite of banking services, which gave traditional banks even more reasons to rethink their business models and processes.

With this in mind, I believe that the next major development we are going to see in the banks-fintech relations will be fintech firms including mortgages and leasing into their services. When this happens, traditional banks will face even fiercer competition in areas that were previously their exclusive domain, turning up the heat on them once again.

Fintechs are nimble and have the advantage of not being slowed down by outdated legacy systems. If banks don’t figure out ways to adapt, they will soon find themselves falling behind and possibly disappearing altogether.

The Challenges of Digital Transformation

Of course, even if the banks are willing to change with the times, it’s not like the road to digital transformation is going to be easy. There are still plenty of challenges to account for, and outdated IT infrastructure is at the top of that list. Many banks struggle with integrating new technologies into their existing systems, which often results in clunky customer experience and inefficiencies.

These inefficiencies are often tied to the problem of not having the right people for the job. The ones responsible for updating the banks’ systems either don’t have the necessary skills or lack the innovative mindset that’s needed. This means that banks need to make serious personnel changes and bring in new blood if they want to succeed. It’s not just about updating technology — you need to update the human components, as well.

Another big challenge is regulations. Adopting digital solutions means that banks must navigate a complex web of compliance requirements, with standards related to data protection, AML, and cybersecurity growing stricter all the time. Innovating under such circumstances can be quite challenging.

Reaching out to fintech companies for partnerships can help solve some of these problems. These firms can provide banks with the right technological solutions and consult them on how to better update internal processes.

What’s Next for Fintech?

At this point, we all know that the fintech sector will not be slowing down any time soon. There is no shortage of avenues still left to explore, but there are two main trends that I believe are going to shape fintech’s future in major ways.

The first is financial education. We are already seeing signs of such platforms shaping up. The more fintech companies focus on teaching their customers about financial products and how to use them effectively, the more the customers will be willing to trust fintech platforms and use their services. This is going to be an important growth driver for the sector in the coming years.

The other trend to watch out for is the rise of the so-called “SuperApps.” This business model allows fintech companies to build an entire ecosystem of products, all centred around a core service. By doing so, these platforms can create a more versatile user experience, becoming essential in their day-to-day financial lives and deepening customer loyalty as a result.

Final Thoughts

Fintech began as a bunch of niche solutions and by now has grown into a multi-billion-dollar industry. The way I see it, in the future, the partnerships between fintech firms and traditional banks are going to continue driving this transformation, creating a more efficient global financial ecosystem. Banks that want to survive in the years ahead need to learn how to embrace this change.

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