Some customers might be surprised to learn just how old the technology is that powers their banking transactions. The software that keeps our financial system running is sometimes decades old — especially in large Tier-1 banks.
Legacy systems are maintained like this because it can be prohibitively expensive and time consuming for banks to upgrade them. And allowing any down time at all when people count on their finances being accessible is tricky.
That’s where the FinTech industry is proving its value most notably. Rather than viewing them as competition, frequently banks are turning to FinTech companies to offer solutions and technical upgrades without the time and expense that would otherwise be incurred.
Why Are Banks Outsourcing to FinTech Companies?
In a study conducted by FinTech company Fraedom, it was determined that nearly two-thirds of American banks are being held back from developing their own financial technologies by legacy systems. As finance grows increasingly competitive, banks are looking for ways to differentiate themselves and look for technological solutions to drive more business.
But to do so, it comes down to a simple cost/benefit analysis. Will the benefits of upgrading the legacy systems outweigh the time and cost of implementation?
Far too often the answer is “probably not.” At least, not if done in house. By working with FinTech companies who can develop solutions that are quicker to implement and less cost prohibitive, banks are able to remain more nimble and competitive.
It’s not just retail banks either. Corporate banks are aggressively pursuing FinTech solutions to remain competitive. According to the survey, 94% of commercial bankers supported incorporating FinTech solutions to “help bring products to market faster.”
As put by Kyle Fergosun, CEO of Fraedom:
“This research highlights that legacy systems are standing in the way of US commercial banks developing FinTech applications. This in turn is resulting in certain services […] being outsourced by more than three quarters of banks. It is now recognised that Fintech firms can help banks overcome these technical issues and benefit from previously untapped revenue-making opportunities.”
FinTech Solutions Allow Banks to Improve Customer Relationships
With faster deployment and lower up-front costs, opting for FinTech solutions will have immediate positive impacts on a bank’s bottom line. But its real value lies in improving customer experience.
Legacy banking systems may not be nimble enough to respond to changes in market desires. As customer bases (especially the up-and-coming Millenials) grow more accustomed to rapid advancements in the technology they use, they’re going to demand equivalent advancements from their banking institutions.
With FinTech solutions like those offered by Zafin, banks are able to remain flexible and offer personalized product bundles to customers, and stay ahead of the competition. It can even tailor fees and rates to reward positive behaviours and increase customer satisfaction.
Beyond the obvious faster deployment of technology and the reduced cost, building strong customer relationships will possibly reduce churn. Happier customers are likely more open to cross-selling and willing to pursue other banking products within their chosen institution — making for a more fruitful relationship for both parties. Either way, the bottom line is impacted.
FinTech Solutions are Better for Banks, Better for Customers
Financial technologies are working with legacy banking infrastructure to offer a more dynamic, flexible and effective system than ever before. It’s great for faster deployments, new product bundles, and customer relationship management.
The stats don’t lie — more banks than ever are partnering with FinTech to offer more in a hyper-competitive industry.
Zafin (@zafin) is a leading financial technology provider that enables banks to form richer, more personalized client relationships. Built from the ground up for financial services, its platform empowers banks to enhance revenue and operational efficiency. Founded in 2002, Zafin sits among North America’s top FinTech companies, and is trusted by retail and corporate units at some of the largest banks worldwide. Headquartered in Toronto with global offices, Zafin has a proven track record with a 100 percent client retention rate as validation.
Cam is the Product Marketing Strategist at Zafin. With a background in journalism and a passion for blogging, Cam strives to tell compelling digital stories. At Zafin he will share the latest trends and news in the FinTech world, and share Zafin’s role as leader in the industry. Follow him on Twitter @CamSmoth