Is your business embracing the FinTech that’s shaping the future of the financial services industry?

The rise of FinTech is the inevitable result of an increasingly demanding consumer base, one that has become more reliant on technology to simplify and expedite daily tasks. Many financial service executives foresee that FinTech will directly impact consumer services first and foremost, followed by asset and wealth management institutions and financial insurance companies.

Despite its relatively recent emergence, financial technology has already begun shaping the interactions between financial institutions and their customers.

The FinTech Disruption

FinTech is agile and dynamic, letting applications continuously develop new services that drive higher consumer expectations. Standalone market entrants can take advantage of new technologies by offering key services that traditional financial enterprises failed to provide to their customers either quickly or conveniently. Success in this arena comes in the form of low-cost solutions such as Splitwise, a bank-agnostic mobile app that helps groups track and reconcile shared costs, as well as retail banking replacement solutions such as Venmo, PayPal and Apple Pay.

FinTech startup funding continues to rise year over year, and the industry has no expectations that this trend will reverse. In fact, global investment in fledgling FinTech firms totaled $19.1 billion in 2015, an increase of 106 percent from the previous year. New business arrangements, such as the startup accelerator established by Wells Fargo in 2015, will also give access to talent and innovation for new products and experimentation. Motivated by these significant developments, experts believe that approximately 20 percent of financial service businesses are at risk to FinTechs.

Present Implications

The FinTech boom is fueled by a call for financial services that offer increased efficiency and lower costs. The results of this push for innovation can be felt by both consumers and retail banking companies.

Millennial Money Management

Millennials are the earliest adopters of FinTech, using it for tasks previously performed in a conventional banking setting, like moving small amounts of money from checking to savings with SMS bots and mobile apps like Digit. They are also fans of FinTech’s personal finance management abilities. Mint and other integrated financial dashboards let users access their financial data from anywhere, while robo-advising and stock-trading apps such as Robinhood save investors money by eliminating human investment managers. Millennials are even embracing alternative approaches to money, using anonymous, decentralized ledger technology like the Blockchain wallet to manage bitcoins and other digital currency.

Financial Service Reactions

The financial service community has responded in various ways. A small minority, influential investor J. Christopher Flowers chief among them, believe that FinTech is a short-lived fad. These organizations are doing little to prepare for a technologically integrated future, maintaining the traditional model of financial services and relying on name or size to keep them afloat.

A larger number have resorted to increasing their fees to make up for their shrinking market share, and many are closing branches and reducing staff to cut costs. This is not a long-term solution as a third of consumers cite high, unpredictable fees as a significant factor in their decision not to have a bank account. Continuously increasing fees while cutting services will ultimately alienate a large segment of consumers.

Future Requisites

At only one percent of the total market share in 2015, FinTech’s current impact on financial services is still fairly manageable. However, a study conducted by Citi projects that the FinTech market share will grow to 17 percent by 2023, raising its level of influence considerably. In the future, the most successful companies will be those that can adapt as the financial service environment evolves. So, what should traditional financial service organizations do to stay ahead of the FinTech curve? Incumbent enterprises can take a few paths to stay abreast of trends and customer needs.

Leverage FinTech

Companies must find ways to take advantage of the growing number of technological tools. Integrating FinTech into an organization’s digital ecosystem can help larger financial enterprises attract valuable niche customer segments, including heavy mobile users and 20-something consumers. This type of technology also lets financial service firms think more holistically about their customers’ needs and expectations and develop innovative solutions without losing sight of their core offerings and revenue streams.

Smartphones and other mobile devices are key drivers of the changes in financial services. Mobile-first bankers want instant gratification and secured channels for payments. Companies that adopt a mobile-first design for user experiences can take back much of the ground that’s being lost to third-party FinTech newcomers. One way companies can leverage this technology is to combine the rich customer profile data they already own with biometrics to create holistic services that fully match current customer needs and preferences.

Preserve Branches

Brick-and-mortar branches are still a vital component of financial services. To keep them profitable, organizations will need to switch the focus of their branches from transactions such as withdrawals, deposits and transfers to face-to-face financial consulting. In this way, branches can function as the human side of a digitally enhanced, comprehensive approach.

Hire FinTech Talent

If you can’t beat them, consider joining them. FinTech companies exist solely to provide key solutions and empowering services that can be delivered without a middleman. Partnering with FinTech firms gives businesses the ability to improve their current financial service offerings or identify ways to improve cost and process inefficiencies without spending the time, money and labor to develop their own applications.

Buy Them Out

Larger financial service organizations have the option of simply purchasing and assimilating their FinTech competition. Multinational banking institution BBVA has taken this route a few times, acquiring web-based banks Simple and Holvi in 2014 and 2016.

As FinTech continues to the shape the future of the financial services industries, companies must invest in emerging technologies as it makes sense to their business. No matter how FinTech changes the industry there is one thing that will remain the same: the companies that fulfill the needs and wants of customers will be the ones that succeed.