How are Fintechs Driving Online-Only Banks?

Banking CIO Outlook | Thursday, September 19, 2019

Online-only banks are getting a good reception in the market as fintech companies are fueling their rise by supplying a host of technology-backed products and solutions. 

FREMONT, CA: The rise of the digital customer has changed the dynamics of the financial industry forever. Banking services, previously limited to physical facilities, are now going mobile. In a more recent development in the sector, there has been the emergence of several 'online-only' players. These are virtual banks that offer most of the traditional banking services to customers exclusively through internet-based mediums. The growing fintech industry is the major force behind these innovative firms that promise better-quality banking and improved customer experience. Advanced technologies, including artificial intelligence, machine learning, blockchain, and big data analytics, are being incorporated into banking solutions provided by fintech companies. Adoption of these technology-backed solutions has created the business framework for modern banks, including those that offer online services only.

Online banks are built from scratch with the focused deployment of digital technologies. All the leading online banks in the market today are startups that have the potential to provide well regulated, reliable services as the scope for disruptions is entirely absent. Many of the back-end applications are proprietary products that online banking companies develop themselves. However, aiming to have completely self-sufficient IT infrastructure becomes challenging. So, online banks depend on the offerings of third-party fintech providers to create robust operational capabilities that drive their virtual banks. Every aspect, from risk management to customer service, can be seamlessly integrated into online-only banking platforms to create credible and optimized virtual banks.

The first challenge that online banks face is that of generating trust among users. The conventional approach to banking has always been driven by dependable services provided by established brick and mortar branches of banks. Only when the online-only banks have something unique to offer, they can expect to find customers. Virtual banks that have seen quick popularity and success owe it to the innovative range of products and services they offer. Thus, along with the creation of robust system architecture, these companies are focusing on product development. Numerous fintech companies in the market have AI-backed analytics which they include in product development suites. Using the data analysis gives virtual banks the intelligence they require to develop personalized offerings for its customers.

A few virtual banks have seen significant popularity recently with a rapid rise in the number of customers. Scalability is a significant factor for virtual banks. From the very beginning itself, online banks must focus on investing in and developing a structure that can support the increasing volume of customers, processes, and transactions. Cloud technology is appropriate since it supports scalability and agility like no other storage medium. Cloud environment can be complicated and challenging for virtual banks at many levels. Several fintech companies offer solutions that make it easy for banks to model their services in accordance with cloud architecture. These suites often include security functionalities that protect the sensitive data handled by online-only banks effectively. 

The right interface and security are the most integral factors for any virtual bank. The rise in financial frauds has made it imperative that every online banking service provider takes extra steps to secure transactions as well as customer data. Blockchain-based solutions offered by fintech companies have the power to revolutionize banking security. While some conventional banks that offer mobile banking facilities have already adopted the technology, virtual banks are at a better position to take advantage of it.

Online-only banks function only through web browsers and apps. How these are designed determines the brand value of the banks to a great extent. When users can navigate effortlessly and get all their work done on light-weight smartphone apps or browsers, customer satisfaction is a guarantee. Finding the right technology vendor and undertaking a holistic approach towards serving customer, enables online-only banks to carve a niche for themselves in the competitive banking sector. 

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