Fintech vs Banks: David against Goliath - What Each Are Getting Right to Keep Their Market Share, and What They Owe to Improve on to Get More Clients

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They say you can't fight Goliath. But there are David's out there who have proven that this reputation is not always true. Major banks around the globe have been facing massive competition from small startups. Fintechs are growing faster than ever, with some beating out big banks in terms of growth, and others laying the foundation for a strong future. You've probably heard about many of the top fintech companies: Lending Club, Kabbage, Prosper, Propel, Motif, Clarity Money, Flutterwave, Paystack, the OG PayPal, and so on.

No argument from me, as  Goliath is a monstrous force to challenge, an opponent with all the odds stacked in his favor, and yet, David beat him. Several modern-day Davids are challenging Goliaths such as banks and financial institutions in the financial tech space. Some of them have had tremendous growth over the past years already while others are still getting their footing under their feet.

The financial technology industry, popularly known as Fintech, is seeing a royal battle and David's is proving that they are here to stay by growing their client base and taking away market share from their much bigger competitors: Banks. I'll be analyzing these two giants through the lens of marketing, operational excellence, and innovation to try to identify traits shared by each and gaps left untilled. I believe that in the last few editions, we spoke extensively about each industry, and today is simply an analysis of the gap

I think that the expansion of fintechs across the globe is great because it brings financial services to more people and it's great because it makes it possible to offer those services at more affordable rates and more convenient locations. But before we use these companies as an example of how successful fintech innovation is; let's take a look at what each gets right in marketing and operations.

These two industries have essentially been around for a long time. The finance sector has been there since the times of nobility and kings who traded gold and stashed it in vaults all over Europe. The other, technology has also been around in one form or another since the first computers were invented. They do seem to exist in two very different worlds though. Finance is considered old and traditional while technology is vibrant and futuristic. It's hard to imagine what could be better than a stoic old banking institution when it comes to finances, but that seems to be changing with these new "fintech" companies coming on the scene.

Banks have been the dominant players in the industry for centuries, but the rise of financial technology (fintech) companies has disrupted their market share. Fintech companies are changing the way people access financial services, and the traditional banking industry is struggling to keep up. We established this in this edition, you may want to catch it here.

Fintechs as digital-native startups use technology to provide financial services to customers. They offer a range of services, from mobile payments and peer-to-peer lending to AI advisors and digital currencies. Banks, on the other hand, have been slow to adopt technology and have struggled to keep up with the fast-paced fintech industry to respond to the needs of digital natives millennials, and Gen Zs.

So, What is it that Fintech Companies Are Getting Right

Simply put, Fintech companies have disrupted the traditional banking industry by providing customers with fast, convenient, and personalized financial services. Say what you like that our generations are lazy, Here are some of the things that fintech companies are getting right:

1. Technology: Fintech companies are leveraging the latest technology to offer innovative financial services. They use artificial intelligence (AI), machine learning (ML), and big data analytics to provide personalized services to customers. They have also embraced mobile technology to offer services on the go, which has been a significant advantage over traditional banks.
2. Customer Experience: Fintech companies are providing an exceptional customer experience. They have created user-friendly platforms and apps that are easy to navigate, which has made it easier for customers to access financial services. They have also made it possible for customers to access services 24/7, which has been a significant advantage over traditional banks.
3. Innovation: Fintech companies are constantly innovating to offer new and improved financial services. They are not afraid to experiment with new technologies and services, which has led to the development of new products like AI Powered-advisors and digital currencies.

Fintech companies are characterized by their innovative use of technology, which allows them to offer financial services that are faster, more efficient, and often more affordable than traditional banks. 

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One of the main advantages of fintech companies is their ability to innovate quickly. Fintech firms are often started by individuals or small teams who are not burdened by the bureaucracy and legacy systems that can slow down large banks. This allows them to respond to changes in the market and customer needs more quickly, and to develop new products and services that meet those needs.

Another advantage of fintech companies is their ability to leverage data and technology to personalize the customer experience. Fintech firms collect vast amounts of data on their customers' spending habits, investment preferences, and financial goals, which allows them to offer tailored products and services that meet those needs. For example, some fintech companies offer investment platforms that use algorithms to suggest personalized portfolios based on customers' risk tolerance and financial goals.

What Banks Are Getting Right

Banks have been around for centuries, and they have a lot of experience in the financial industry. We may have a debatable relationship, but some of the things that banks are getting right:

1. Trust: Banks have built a reputation for trust and reliability over the years. Customers trust banks to keep their money safe and secure, which has been a significant advantage over fintech companies that are relatively new to the industry.
2. Regulations: Banks operate under strict regulations that are designed to protect customers and the financial system. These regulations ensure that banks have adequate capital and liquidity to withstand economic shocks, which has been a significant advantage over fintech companies that operate outside of the traditional regulatory framework.
3. Branch Networks: Banks have a vast branch network that allows customers to access financial services in person. This has been a significant advantage over fintech companies that operate exclusively online.

Despite the challenges posed by fintech companies, traditional banks still have many advantages. One of their strengths is their extensive physical presence. Banks have built large networks of branches and ATMs that are convenient for customers to use, and which help to establish a sense of trust and reliability. This physical presence can also be a competitive advantage when it comes to customer acquisition, as it can be easier to attract new customers when they can see and touch the institution they are doing business with.

Another advantage of traditional banks is their established reputation for safety and security. Banks are heavily regulated by government agencies, which helps to establish trust with customers. Banks also have sophisticated security measures in place to protect customer data and prevent fraud, which is a key concern for many people when it comes to financial services.

While fintech companies have disrupted the traditional banking sector, they are not necessarily superior in all aspects. 

What Fintech Companies Owe to Improve On

Despite their many advantages, fintech companies still have a lot of room for improvement. Here are some of the things that fintech companies owe to improve on:

1. Trust: Fintech companies are relatively new to the financial industry, and they have not yet built a reputation for trust and reliability. They need to invest in building trust with customers to be successful in the long term.
2. Regulation: Fintech companies operate outside of the traditional regulatory framework, which has led to concerns about their stability and security. They need to work with regulators to ensure that they are operating in a safe and secure manner.
3. Customer Service: Fintech companies have built user-friendly

Despite their many advantages, fintech companies also have some areas for improvement. One of the biggest challenges facing fintech firms is customer acquisition. Unlike traditional banks, which have large marketing budgets and established brands, fintech companies often struggle to attract new customers, and often have restrictive budgets that also are allocated to campaigns in the wrong manner as too much is often allocated to media buying, competing with established competitors, or allocated to brand marketing, with little to nothing allocated to educating the market, which is actually at the core of fintechs woes with customer acquisition.

A study conducted in Nov.2022 by Wizz Digital Marketing that tried to establish how aware African freelancers and digital native entrepreneurs were aware of alternatives to PayPal to receive payments for services rendered online left us perplexed. Only 28% were aware of other options, 14% learned about other options through discussions with peers on social media,66% were unaware, and 2% used their banks to receive foreign payments through SWIFT. Of the 28% aware of options on the continent, only half made use of these options. Options that came up were Paystack, Payoneer, & Flutterwave.

 Although Fintechs would love to throw money at the problem through media buying or influencer marketing campaigns aimed at building brand awareness, the problem lies elsewhere. Their headache exists because many people are hesitant to trust their finances to a relatively unknown entity, and because the fintech industry is still relatively new and unfamiliar to many people. Excuse my French, but most fintechs go to market strategies suck! The mistake I have often seen across many startups is a lack of proper go-to-market planning that results in them losing the opportunity to impress the target market. I recently witnessed the launch of a new fintech, which essentially could be classified as a miss because of the absence of a prelaunch go-to-market plan

The first the market heard of the product was in the media, to which the reaction wasn’t too exciting. From insinuations that it could be the “new world order” on TikTok, to comments on YouTube stating that it wasn’t needed, or comments in a forum questioning its value proposition, all indications that this particular fintech launched to a cold audience that didn’t understand its value proposition. And a prospect who doesn’t understand the value you add to his/her life will never get on board your services. 

This is consequently one of the few mistakes startups make. From creating waitlists with no prelaunch email marketing campaign to warm up those early hand raisers, to the equivalent of “we are here, now buy”, the old adage of “build it and they will come”, many founders are quite essentially participating to an invisible ice bucket challenge.  Sorry to be the bearer of bad news, but the world is not standing still waiting for you to bring your innovation to life. The world is actually moving fast, and your innovation and marketing message is what will get them to stand still to pay attention to what you have to offer. When you fail to do that, good luck getting any traction- And I don’t want to be you in that next investor meeting

Now, another challenge facing fintech companies is the need to establish trust with their customers. While many fintech companies have robust security measures in place, customers may still be concerned about the safety of their financial data.

Fintech firms need to do more to educate customers and the market about their security protocols as that is often the main concern of their audience, as well as educate them on the safety of their funds when using their services, as some often view fintechs as fly by night businesses that have no offices to turn to if they need answers. This has been the main reason for slow adoption, especially in developing markets in Africa. Such an approach will help them grow the demand.

Though digital native business owners and freelancers seem to be all right with using fintech services, a number of people aren’t. An interview with a sample size of individuals comprised of East, West, and Southern Africa rendered interesting results. 60% felt that Fintechs would disappear with their money, 28% didn’t see why they should use Fintech platforms instead of banks, and 12% felt that it was an added expense that cut into their money.  Creating content that educates and addresses these concerns is important to establish trust through transparency and open communication.

What banks need to improve on

Permission to envision me cracking my back, stretching my arms and fingers to type this because I am doing just that. See, I have had my fair share of banking experiences. Been fortunate enough to bank with most of the banks in South Africa, and outside of perhaps personal banking with that bank with the long queues at the ATMs that start with a C, It hasn’t been the most pleasant experience. 

Do we really need 5 notification messages with every transaction? Yes, I ordered Mr. D again for the 2nd time in the day instead of cooking, do I really need a reminder of my financial sins? And, on top of it, you are making me pay for each of them- I am giving you a “bombastic side eye”  that bank that starts with F & ends with B.

Or, why does it feel like writing a geometry math exam again,  trying to figure out how to link your digital wallet with your bank account in South Africa? 

I am a millennial, I want very little interaction with people!!!!

Having to go to the bank is an inconvenience. Banks be driving my social anxieties through the roof!

But since I have to still deal with banks, until digital banks get the memo, and create offers that meet my needs as an entrepreneur with a digitally native business, I have to play nice. So if we got some banking CEOs in our midst, this part is for you (If you know a bank CEO, maybe you should send them this newsletter, I will be saying a prayer for you)-because y’all be getting the “criminal offense” side eye from most millennials and Gen Zs, and given the fact that in the coming years, we will make up the bulk of your clientele, I am about to do my act of public service

Embrace technology

Banks definitely need to embrace technology and invest in improving their digital solutions, especially the UX experience. I am speaking from personal experience here, I have been quite frustrated. And speaking to peers from across the world, I am not alone. Banks need to offer mobile banking, money transfers, and other digital services that are as fast and convenient as those offered by fintech companies if you guys intend to stay in the race. Short attention span generation here, patience isn’t our strongest virtue, jumping ships, now that is something we are quite good at. Banks should also work to improve their online user experience and provide a seamless and intuitive interface (Please I am begging you ).

Reducing costs

Banks have higher overhead costs than fintech companies, which can make it more challenging for them to offer competitive rates. Maybe that is why I get charged for those 5 messages, and can never get the bank to give me a straight answer on those charges. I gave up on understanding that math. Banks need to find ways to reduce their costs to remain competitive in an industry where customers are becoming increasingly price-sensitive.

Offer competitive rates

To remain competitive, banks need to offer rates that are competitive with those offered by fintech companies. Yes, we are pitting banks against fintechs as well, and not just other banks. Clients are becoming increasingly savvy and sophisticated when it comes to financial products and services, and they will not hesitate to switch to a competitor if they can get a better deal elsewhere.

Transparency & Accountability

Banks need to be more transparent and accountable to their customers. They need to provide clear and concise information about their financial products and services and ensure that their customers understand the risks and benefits of their investments.

In conclusion, while banks have many advantages over fintech companies, they still need to improve in certain areas, such as customer experience and technology adoption. It is essential to consider both the pros and cons.

Both have to make an effort to educate the market on they add value to their lives, and not just in a transactional manner.

Fintechs will inevitably continue to evolve their offerings and expand their platforms. Banks, on the other hand, will have to adapt their strategies in a landscape where innovative and more modern approaches to financial operations are being pushed into the spotlight. If banks want to keep their clientele, then they will likely have to tailor their services to cater more closely to what fintechs are offering. Whether that be through partnerships or simple imitation, it is evident that fintechs indeed have much to teach banks in terms of how they brand themselves and how they engage with clients alike.

As the financial technology industry continues to boom and new fintech businesses pop up daily, banks cannot afford to continue to stand still. The financial sector as a whole must also continue to innovate so that it can stay current with its clients and make sure they are able to provide them with the best services possible. In this way, innovation need not suffer from what many tech companies call "product-market fit".

Despite the clout and market share of banks, fintechs are indisputably on the rise. Both sides have the chance to grow their business on their own - but new solutions need to be created that blend both fintech and banks together to improve the customer experience. So with all of these digital solutions available in today's world, it's looking like a good ol' handshake may no longer be enough for a successful brand relationship. There needs to be a meeting of minds, if you will, between the online and physical worlds. Doing so successfully is going to be paramount in building relationships that matter between brands and customers.

The future is impartial and it can't be predicted, but that doesn't stop us from speculating. So what will happen? Will banks die out? Will fintechs replace the banks? Will banks integrate new technology in their offering to catch up with or even beat the fintechs which have been eating into their market share for so long? No one knows for sure, but with the pace of technological change, one thing is certain: banking will never be the same again.

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About the author

Tanya Kabuya is a Business Coach and Marketing strategist who works with people of influence such as speakers, coaches, entrepreneurs, authors, consultants, and SMBs to amplify their marketing message and increase their impact while remaining true to their core. Her work centers around leveraging content & social media to create a client acquisition system that attracts premium clients and opportunities. She is the Founder & CEO of Wizz Digital, a digital company & remote first that aims to equip consulting firms & Startups with the skills to market and sell their services with ease. Book a consultation here if you require assistance

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