Fintech vs.Traditional Banks

As the movement towards open banking continues, traditional banks must look at the road ahead. The financial services sector is being revolutionized and strategic partnerships with fintech companies will be the secret to success.


Fintechs have stormed the financial services industry, offering personalized, frictionless, and streamlined services that threaten the customer base of traditional banks. This disruption has perhaps not been taken seriously by banks until recently, where major tech powerhouses like Amazon have blurred the lines between industries and crossed over into several different sectors, including financial services. As this trend continues, traditional banks are rethinking what true competition looks like—and re-engineering the rules of engagement as new players emerge from unexpected places.

What, on the surface, could appear to be an all-out war has actually spurred increased collaboration, faster innovation, and better customer experiences. Where fintechs and traditional banks learn to partner in service to customers, great strides have been made in technological advancement and consumer empowerment.

These types of partnerships are also aided by evolving regulations, like the PSD2 (Revised Payment Service Directive) which is a EU directive geared toward creating more innovative and secure payments in Europe. The directive requires banks to provide third-party providers with access to account data through open APIs, enabling those third-parties to layer financial services on top of a banks’ infrastructure and data.

Banks that take heed of what the future is bringing will be best-positioned to turn what could be death sentences for less-progressive banks into opportunities for growth.


New banking options emerge daily, threatening to steal market share from traditional banks, but also opening up new channels for lucrative partnerships and new revenue streams. As both fintech and other non-bank players move into the space, banks have an opportunity to lend their financial expertise to tech companies looking to create new value for existing business models. It’s a positive trend and one that Capgemini expects to continue; partnerships between financial companies will be the norm as 91.3% of banks and 75.3% of fintechs report they expect to partner with each other moving forward.

The old adage “if you can’t beat them, join them” is especially true here. As disintermediation spreads throughout the financial services sector, banks must find a new way to remain profitable. Traditional barriers to entry for capital markets and investment banking (regulations, oligopolies, incumbency) are disintegrating and regulatory bodies are applying pressure to banks to embrace fintech-led avenues.


The unbundling of banking has been proliferated by directives like PSD2, enabling consumers to pick and choose individual banking products and services at will rather than buying into a “bundle” of services. In the UK, there has been a significant shift; just three years ago, the UK’s ‘big five’ retail banks held 80% of personal accounts, whereas today, more than 20 million customers are served by one of the 10 largest “challenger” banks.

Open API banking has led to more personalized financial products, apps, and services. On the surface, this move looks like an additional degree of separation for banks from end users; however, banks engaged in strategic partnerships have the opportunities to become a financial hub for end-users, rather than a marginal element.


As financial technology accelerates and newer, nimble players have the ability to offer more personalized financial products and services, banks face the obstacle of differentiation. This struggle is aggravated by the evolving demographics of banking customers. Millennials—a group that will have $1.4 trilling in spending power by 2020—are looking for increasingly sophisticated offerings in the financial realm. The ability to enjoy premium self-service and 24/7 access is important to this group, and they also expect personalized experiences built with their unique preferences in mind.

Banks have a wealth of customer data at their fingertips, yet many have not yet tapped into the business value of these assets. Working with fintechs to extract insights and offer personalized products and services via AI, machine learning, and geolocation services can help banks avoid commoditization. Customer-centric innovation is the key for differentiation in the traditional banking sector, and banks will need the help of fintechs to unlock the full potential.


In August of 2018, McKinsey interviewed Zach Perret, CEO of Plaid, to elicit his views on the evolving world of banking. Perret noted the importance of customer-centricity and the need to pivot with new technology, stating: “The move towards open banking is a testament to the way that banks are increasingly embracing technology that allows their consumers to better control and take agency over their financial lives.”

Banks have a strong advantage in the areas of customer data, risk management, and regulatory compliance. Avoiding stagnation and actively and strategically partnering with fintechs to create personalized, customer-centric experiences are the best ways for traditional banks to deepen customer relationships and thrive in the new open banking marketplace.

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