Fintech and the digitization of financial services are no longer buzzwords. They have become standard operating procedures for almost every major financial institution. With the rise of Fintech and financial technology (FinTech) companies popping up worldwide, several new disruptive players have entered the market with technology-driven products that directly target customer needs.
With over $25 billion invested in the global financial services market in 2022, Fintech has become one of the fastest-growing industry segments worldwide.
FinTech companies are challenging traditional banks in new and exciting ways, from online lending to mobile banking to payments. The good news is that FinTechs have brought a lot of innovation and disruption to the banking industry; therefore, bank executives looking to remain competitive in this changing landscape can be confident in the changes taking place.
Operation is a broad term for all the processes in any fintech organization. In this blog post, we’ll explore what makes an organization an operation-driven firm — not just a bunch of departments with different job titles — why that matters and how it can help your fintech startup thrive.
Let’s take a closer look at why Fintech is so prominent and its growth potential.
What is Fintech?
Fintech is defined as the use of financial technology to facilitate transactions and services, improve efficiency, and increase accessibility in the financial sector. The fintech sector has evolved due to technological advancements that have enabled companies to leverage technology to provide financial services in new ways.
In recent years, the fintech sector has witnessed the rise of several tech-driven companies that offer financial services such as peer-to-peer lending, online money transfer, digital payments, trading, asset management, insurance, and financial advice. Consequently, the fintech sector has significantly contributed to the global financial landscape.
Banking Operations: The Key to Success
Over the years, banks have heavily relied on technological advancements to improve operational efficiency and deliver value-added services to their customers. The increased adoption of digital processes has helped banks achieve operational excellence, reduced costs, and improved active risk management.
The digitization of banking operations is also one of the strongest growth drivers for fintech companies. The convergence of multiple technologies has given rise to a growing number of digital solutions capable of transforming business processes across the banking industry. These technology-driven solutions are primarily aimed at reducing manual intervention, improving accuracy, and enhancing the speed of banking operations.
As a result, banks need to adopt a hybrid strategy that combines innovation while continuing to provide trusted services from trusted partners. This is critical to ensuring that banks are positioned to retain their market share, even as Fintech continues to proliferate.
Core Banking Operations (CBO) Services
Core banking operations, also known as core banking platforms, are financial services platforms that host all of a bank’s critical functional areas, including accounting, risk management, asset management, cash management, payment settlements, and other services. These platforms are the backbone of banking operations.
They are responsible for processing critical functions such as receiving and crediting payments, settling interbank transfers, managing transactions, and handling customer requests and queries. These systems also allow banks to provide customers with a wide range of financial services.
Due to the rapid adoption of digital technologies, the core banking industry has witnessed a transformative shift from traditional systems to modernised cloud-based, scalable, and modular platforms.
With the rise of new digital solutions such as artificial intelligence, blockchain, and big data analytics, core banking platforms are also witnessing significant changes. These technologies can be leveraged to give banks the ability to offer customers a wide range of digital services.
Automation is Key
Banking operations depend on many manual processes involving physical documentation and a high degree of human intervention. Several banking functions involve a high manual intervention, such as account opening, account servicing, loan processing, trade settlements, and cash management. As a result, these processes are often time-consuming and subject to human error.
Manual processes and a lack of automation are significant challenges that banks need to overcome to offer efficient services to their customers. Manual processes can be streamlined by leveraging automation to allow banks to reduce costs, increase productivity, improve accuracy, and enhance customer experience and satisfaction.
Automation can integrate core banking platforms with other systems, enable real-time insights, and provide customers with a wide range of digital services.
Bank Strategies in Light of Fintech
Banks must adopt a single-minded strategy that puts the customer at the centre of everything they do. This approach not only helps banks retain existing customers but also enables them to attract new customers through an enhanced digital experience. Banks can do this by adopting a digital-first strategy and leveraging Fintech.
A digital-first strategy involves transforming core operations, such as account opening and servicing, into a digital experience. Banks can do this by leveraging document automation and online tools to simplify the application process. This strategy reduces costs, shortens the time needed to onboard new customers, and enhances satisfaction.
How will banks benefit from investing in Fintech?
By adopting a digital strategy and investing in Fintech, banks can transform their business models and re-strategize how they can remain relevant to their target audience in today’s changing environment.
One of the key benefits of investing in Fintech is that banks can quickly discover new technologies and solutions through partnerships, investments, and collaborations. This allows banks to enhance their core services with modern features, such as artificial intelligence and blockchain, and improve their overall customer experience. Investing in Fintech also helps banks to reduce costs and increase productivity by introducing automation.
Digital Banking — A Platform for Growth
Digital banking can also be used to develop new products and services that cater to customers’ changing needs in the modern financial landscape. Banks can build a scalable and agile platform through a digital transformation that enables them to process large volumes of data and respond to customer demands in real-time. Digital banking also allows banks to target new customer segments, such as millennials, and expand their business to new geographies through efficient and low-cost operations.
The Importance of Operations in Fintech
Operations play a critical role in the success of any fintech firm. If operations are substantial, companies can more easily scale up their business to meet increased demand, expand into new markets, and take advantage of strategic partnerships and other growth opportunities. Operations can have a significant impact on a company’s success, especially in the financial services industry, which is highly regulated.
Financial services companies must adhere to a complex set of rules and regulations — everything from anti-money laundering rules to Know Your Client (KYC) policies to capital adequacy requirements. Because these rules vary from country to country, financial institutions must comply with federal and local regulations.
This can pressure existing operations — primarily if the firm uses manual processes to manage data, customer identification, and other critical tasks. If a company’s operations are not up to scratch, it may lose out on sales and risk regulatory fines and other penalties. Because of this, it’s not surprising that many banks are turning to fintech firms for help.
3 Reasons Why Fintechs Should Be Operation-Driven
If a fintech company is operation-driven, it will be better able to deliver on its promises, retain customers, and expand its offerings.
Here are three ways operations can help your fintech firm succeed:
- Robust operational processes allow fintech businesses to scale with ease. Managing a large customer base will be challenging if you have limited personnel, primarily if you are servicing those customers remotely. If you are operation-driven, you will have the necessary processes and procedures to scale to meet demand.
- Vital operational processes also enable Fintech to provide consistent customer experiences. Every customer will receive the same high level of service, regardless of where they are located or which employee is assisting them.
- Robust operational processes allow Fintech to innovate and expand its offerings. If you are operation-driven, you will have the people and systems to identify and respond to customer pain points. You can also use your existing data and processes to develop new products and services.
Problems with Being Too Focused on Technology and Product Development
If you are too focused on the technology — or even solely on the product — you could fail to solve operational issues that could keep customers from adopting your service. You could also miss out on opportunities to provide valuable services your customers are unaware they need.
>> People are the Key to Successful Businesses — Operations are not just about machines and equipment. They are mainly about people who create and maintain the operational processes and systems and those who use those systems. If you have too few people actively involved in your operations — for example, if you outsource too much work to other firms — you won’t be able to respond quickly to changing customer needs and preferences.
You may need to find out what sort of assistance customers need. This could lead to operational issues and even lost revenue, but it could prevent you from growing and expanding. If your company is actively involved in its operations, it will be able to develop and identify new opportunities.
>> Having a Strong Basis of Operations Drives Innovation — Strong operational processes enable Fintech to innovate and develop new products and services. If you know what is currently happening across your customer base, you can identify pain points and come up with solutions to help solve those problems. If you know what is happening with your internal systems and processes, you can also develop solutions to address the issues and inefficiencies.
You can use the solutions you come up with to launch new products and services. You can also use them to drive operational improvements across your customer base. You can use your solutions to pivot your marketing messages, sales pitches, and product features to appeal to specific customer segments. You can also use them to redirect to new and existing clients, urging them to take advantage of the solutions you have created.
Fintechs have an opportunity to revolutionise the financial services industry. For that to happen, Fintech must be operation-driven. Operations are more than just various processes. They are how your company interacts with the world — how it serves customers and other stakeholders and manages its internal systems and processes.
A company’s operations determine how quickly it can respond to changes in its marketplace and how efficiently it can scale to meet increased demand. Processes are also vital to improving the customer experience and creating successful products and services. Fintechs that are operation-driven have the most success in their industry.