In the past few years, the banking and greater financial industry has faced some significant changes. What is the financial industry you may ask? Well, we won’t give you a huge overview of the financial sector, but the economic recession from a decade ago coupled with the shift in consumer needs has accelerated its evolution. People grew tired of lengthy, questionable procedures, and began craving faster and more transparent services.
As a result, fintech companies established themselves in the market and forged a new era of digitized financial solutions. Later on, a wind of change stormed the European banking scene as the European Union passed the PSD2 ("Second Payment Services Directive"). The new account enabled financial service providers to collect consumers’ accounts balances and transactions. With data aggregation, PSD2 brought this advanced approach to such an antiquated sector as banking.
That’s the essence of PSD2 and what we are looking forward to building upon. When well-run and well-regulated, the traditional financial service industry is great at helping savings flow to borrowers, make the economy grow, and guarantee financial stability. That’s a full-time job, and we are happy to see the EU offer opportunities for other players to come and add value to that strong foundation.
Despite ongoing efforts and new companies entering the market every day, we can still see how traditional banks aren’t the first ones to innovate. You might say that they don’t need to rival with novice counterparts as they hold way more power over the market.
Traditional Banks Fail to Innovate Fast Enough to Meet New Use Cases
Digitization is one of the key revolutions happening around the world. It’s even been called the 4th Industrial Revolution. It’s difficult to find an industry that hasn't changed since the past decade. The banking sector is not an exception - fintech and neo-banking are on the rise; currently, there’re more than 12 000 fintech startups around the globe, and that number is rapidly increasing. Governments worldwide also recognize the changing habits of consumers and are working to meet demands. That’s what we see are seeing with the PSD2.
Yet, on the contrary, there are traditional banks that struggle to change or embrace digitization. The ease with which companies can talk to consumers through digital channels should have meant that banks brought private banking-like services to everyone, and considered each customer truly as an individual, offering totally customized offers. Yet we haven’t seen that at all, only a “one-size-fits-all” product.
Unfortunately, what we had ten years ago is still what we have now. They've updated their design, and maybe they've gotten a little faster, sure, we can’t say established institutions don’t do a thing, they do. But they haven’t been able to match the speed of progress of fintechs.
Instead of working solely on their own development, traditional banks often hedge their bets and invest in neo-banking companies. Since 2012, investments into fintech grew eight times and in 2018 reached $27.5 billion. Big players can’t let this one slip, can they?
Of course not. As they recognize the threat of the growing fintech sector, 82% of traditional institutions are now planning to increase their collaboration with financial technology companies. However, obtaining or investing in a more agile service doesn't complete all the work. We believe banks should pay more attention to enhancing regulations, their conservative approach, and outdated legacy systems.
Why Does the Traditional Financial Sector Need to Change Its Approach?
Innovation and digitization are key to evolution along with growing consumer needs. Yet many traditional banking institutions see modernization as a peril to financial security and stability. We can’t deny that technological development comes at a price. Information becomes more sensitive to external attacks and data breaches increase. However, it’s no reason to stop evolving whatsoever.
One of the most significant modern threats to traditional banking was and still is open banking. In the past few years, the EU began working on passing the PSD2. The intent behind the idea is to make banking faster and more transparent to consumers. However, open banking raises competition and brings about the loss of control over consumers' data.
The banking sector could also consider adopting modern security policies to meet growing online and mobile banking influence. It would help to avoid misunderstandings and delays and bring about better consumer satisfaction.
As much as we criticize traditional banks, it’s not all black and white. Many financial institutions are working their way to a digitized future. A great example is Goldman Sachs. The organization is not only investing in fintech but also working their way to implement tokenization. Their project Circle was developed to meet the increasing influence of the crypto market and provide to consumers a universal banking experience.
Goldman Sachs wasn’t the only one experimenting with tokenization. However, not everyone was as successful. Dutch bank Rabobank tried to introduce a service called Robobit, which had intended to bridge the gap between virtual asset and fiat accounts. However, according to them, their attempt failed due to skeptical consumers and outdated governmental and banking regulations.
For the same reason, another Dutch bank, ABN AMRO, failed to introduce its crypto banking solution. The conclusion is baffling, whether traditional banks themselves don’t do much to evolve or the system and laws hinder them. However, what we can all agree on is that this has to change, otherwise, even investments in fintech companies won’t save their place in the market.
Traditional financial institutions work their way to modernization, but being a bank comes with its own set of problems. The creation of new, independent players is needed to partner with customers and banks to connect both to who is most relevant for them.
Modern Consumers Need An Experience That Goes Beyond Banking
While traditional banks are still looking for ways to maintain their influence, fintech has a long way to go to find its path to a broader audience, we decided it’s time to make some improvements ourselves. Inspired by the same PSD2, OSOM's goal is to lead the way in re-imagining consumer finance.
We want to help people ditch the numerous financial apps and connect to one app that has it all - and also helps users understand finance better. Link your virtual asset exchanges or open one on within OSOM app - the same goes for virtual asset wallets. We also seek to incorporate fast and secure fiat payments, multiple accounts, balances, instant status updates, and many more offerings to make personal finance enjoyable.
If you are interested in trying enhanced banking services, we're here to lead the way.