Why are traditional banks still alive and not going to die?.
The Fintech market is developing at an unprecedented pace. According to the Pulse of Fintech H2’21, total global fintech funding reached US$210 billion across a record 5,684 deals in 2021. Most likely, the data for 2022 will be no less impressive. And despite this, a considerable part of the market is still occupied by traditional banks, which sometimes have little to do with Fintech. Why is that? Let’s think.
I want to share a case that happened to me. I am using the services of a well-known Internet provider in Lithuania – Telia. I just wanted to pay for their services. What was my surprise when I hadn’t seen in payment method giants of the Fintech industry – Revolut, Paysera, Wise. And no other neobanks! I could only use my classic bank account for that. Paying from your Revolut account is only possible if you transfer the payment to an intermediary who then manages to transfer funds to Telia’s traditional bank account.
Therefore, most likely, traditional banks will exist for a very long time. And unfortunately, there is no motivation for them to change. I am sure that any resident of the EU countries will confirm that Revolut’s interface and services are much more comfortable than in a traditional bank.
To sum up, why is the decline of traditional banks still not visible?
- These banks still have a good customer base, both individuals and corporates, from which they benefit enormously. Banks’ profit is the leading indicator of whether something needs to change. For example, Swedbank Lithuania reported a net profit of EUR 87.2m for 2021. When will the time come when all traditional banks will be unprofitable?
- Many state and private enterprises only accept payments from traditional banks. It is due primarily to the technical and legislative side of the issue. It is a matter of time to change.
- Getting a banking license takes a lot of work. It is a closed club, which is challenging to get into and gives its members a number of preferences. For example, according to EU legislation, deposits are not available to the classic EMI. In addition, SWIFT, SEPA, VISA, and Mastercard are loyal to traditional banks rather than Fintech companies.
- A matter of habit. Corporate clients who want to open an account for their company exclusively in a bank often come to us with this request. Why not Fintech companies? Because it worked so before, it seems more reliable to them.
Of course, a number of banks are trying to implement a new approach in their business. They try to implement modern tools for user identification, making the banking application interface convenient. Some banks are rebuilding their work model, finding a specific niche they need – becoming first-class acquiring banks, issuing cards, organizing competent white label tools, and implementing crypto instruments.
Indeed, this is awesome when a traditional bank implements the same approach that neobanks fight against them. Some payment institutions gradually grow from electronic money institutions into conventional banks – a new era of competition! The market is becoming more segmented, which means increasing the quality of services provided to customers.