FinTech firms: It increasingly profitable in 2021

As FinTech firms become increasingly profitable, traditional banks counter with branded digital-only subsidiaries

FinTech firms are approaching their next milestone – profitability – because they showed resistance during the COVID-19 pandemic. In response to FinTechs increasing consumer popularity and proximity to profits, traditional banks are creating digital units just to serve specific customers, according to Capgemini and Efma’s FinTech World Report 2021.

More than half (51%) of FinTechs expect their capital buffers to be affected by rising staff costs, internal costs, and data storage during pandemic outages. Despite the volatile environment, the FinTech sector continued four years of business growth in the fourth quarter of 2020, after four consecutive years of decline. FinTechs with a diverse product portfolio are also supported by investors. As they get older, FinTechs have proven to be capable competitors and partners; and the report saw a 9% increase in FinTech transactions in the final stages of 2019-2020.

The global adoption of digital models during the pandemic has enabled FinTechs to gain market share, increase competition in the industry, and put pressure on established banks. 25% of consumers worldwide looking for faster delivery, personalized service and convenience say they will try New Era banking products.

Although consumers are increasingly accepting FinTechs, they still trust traditional banks, with 68% saying they would try a digital offering through their banks. However, dozens of operational stickers, legacy technologies, and interconnected business models pose challenges for large residents. In addition, the aftershocks of COVID-19 prove that procrastination is no longer an option.

The potential for continued digital engagement is clear

New payers leverage their strengths (global reach and customer trust) while addressing their weaknesses (old-fashioned IT and customer experience) to stay relevant in the future. The highest priority is to put the user first, and as the industry develops, banks need to respond to specific markets and meet local consumer demand. Banks realize the potential for continued digital engagement. Of the bank managers surveyed, 63% said that a digital agency allows ubiquitous banks, 50% believe that they can bring new products to market faster, and 52% believe that it enables collaboration with the ecosystem through insertion. -And play.

The report describes three approaches – Greenfield, Bluefield, and Brownfield – to building a digital arm and recommends a good methodology that defines a vision, develops a solid foundation, and drives long-term growth through a supportive culture. However, equity and business models hinder the digital bank’s trajectory, including the lack of long-term parental support (47%), a reluctance to support the short-term strategic cannibalization of the parent company’s customer base. half (55%) struggle to deal with bad digital proposals. As FinTechs gains greater leverage and market share, traditional banks need to develop a hybrid model that modernizes their behind-the-scenes mid-office and back-office operations, while creating more digital configurations to serve specific customers.

The report also provides a four-step approach for mature FinTech businesses looking for long-term growth and profitability. The stages include product diversification to attract a larger customer base, orchestrate ecosystems to create new data strengths, services, capabilities, or revenue, and expand into new markets.

Consumers show interest in green banks

In addition to the competitive impulses of the market, incumbents are also facing increasing social and regulatory pressures to switch to green and sustainable practices. According to the Global Retail Banking Voice of the Customer 2021 survey, 65% of consumers worldwide want banks to reduce their carbon footprint by following paperless processes, using renewable energy, and offering biodegradable cards. Nearly a third of consumers pay a premium for green products and services or switch to a new provider of green products.

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