Digitalization has long reached the banking sector. More and more financial startups (fintechs) rough up the industry with their new and simple concepts and put pressure on traditional banks.
As per the Gabler encyclopedia of economics the term “FinTech” combines Financial Services and Technology. It refers to technologies, financial services and their deployment. By now, there are 140 fintechs based in Germany. Surprisingly, most of them are not located in the financial capital Frankfurt but in Berlin, the center of Germany’s startup scene, where most investors and business angels are located, too. Germany’s fintech community is still small compared to other countries but the growth forecasts are huge. But why? What do startups offer that traditional banks do not?
In fact, many services fintechs offer are not new at all. On the contrary, they offer all traditional services regular banks do, too: from account management to bank transfers, equity business and credit mediation. However, they are a serious competition for established banks because they view the banking world from the customers’ perspective and react to trends traditional banks have missed so far. Especially in the mobile sector developments happen at a very slow pace. Young entrepreneurs often optimize the existing processes and develop new business models. Of course, they also benefit from their superior understanding of new technologies. Most customers want to manage their banking online. When traditional banks cannot offer the appropriate services, customer will start to look for alternatives.
The Berlin-based startup Number26 advertises to offer the first account that saves you time. Customers can open up their new bank accounts in only 8 minutes. Their identity is checked via video chat. In comparison to this innovative process, with most traditional banks one has to actually go to the next branch and fill out numerous forms. Another interesting service is offered by the startup Gini from Munich. Gini declares war to paperwork. IBAN numbers can easily be photographed and pasted into transfer forms via app. For this idea, Gini was recently voted best FinTech 2015.
However, German banks do not yet have to fear for their existence. Fintechs need a banking license to be allowed to offer banking services. And this license is not easy to get. Also, many customers do not yet have the same trust in the new providers as they have in established banks. Traditional banks are still perceived as more secure than their startup counterparts. For these obvious reasons, more and more fintechs cooperate with established banks to generate a win-win-situation for both sides. Fintechs can profit from financial resources and customer loyalty, while banks can use the fintechs’ know-how and innovation.
The digital transformation cannot be stopped anymore. Customers can profit from the cooperations of banks and fintechs which create new services to simplify money transfers with new and safe technologies.
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