Fintech & Banks: My kind of F&B
Technology has experienced an exponential growth in the last 50 years and has undoubtedly impacted the banking industry as well. Fintech is the use of digital technology to help improve financial services. Initially, it was introduced and used only in the back-end operations of banks and financial institutions. Today, there are several new applications which are more consumer-based. Such would include the ability to manage funds, trade and pay for goods via this technology.
The main reason why Fintech firms have a high chance of revolutionising the traditional banking industry attributes to customer’s preferences. Customers want to use a method which is quick and easy but also safe and this is offered by the many Fintech applications in the market. The key developments in Fintech has occurred in lending services, payment systems, financial advising and insurance. Fintech has lowered the cost of these services as well as allowed them to be more inclusive.
Fintech firms provide peer-to-peer (P2P) lending platforms where loans can be borrowed without the need for a bank. This allows for small businesses as well as individuals who might not have been eligible in a traditional banking system to be able to borrow a loan. The P2P lending market was valued at 15 billion USD in 2019 and is expected to have an annual growth rate of at least 19% in the next few years. The increased usage is also attributed to the vast competition present in the market which causes cheaper interest rates, making it more attractive than traditional banks. Potential customers would include students as well as start-up businesses.
As for payment systems, PayPal, Apple Pay and Google Pay are some examples of non-bank mobile-based payment systems. Although transaction payments are largely still dominated Visa and MasterCard, mobile-payments are becoming more popular in countries where not everyone has a bank account. For example, countries in Africa have become testing grounds for mobile-payments as well as loans for customers with little credit history. Cryptocurrency also has the potential to completely disrupt the traditional payment systems. The use of block chain technology allows any value to be transferred peer-to-peer without any intermediate institution to verify the transaction as they are verified by a system of blocks of records in a decentralised way. Cryptocurrency allows for a currency without the backing of a government and allows for many cost-saving innovations and as such has a huge potential to disrupt traditional banking.
With that being said, there are several hurdles for Fintech firms. Firstly, would be navigating through the regulatory system. User personal data being online means that there is a possibility of it being hacked or security issues. Hence, there are many government regulations in place for Fintech firms. Secondly, customer acquisition cost may be pretty high for new start-ups as people may not trust the firm due to it being new as compared to an established financial institution like banks. Thirdly, would be the competition it would face. Giant brands have started incorporating technology into their financial services such as Amazon Lending which provides financing options to help small and medium businesses. It would be difficult for start-up Fintech firms to attract investors if their product is somewhat similar and hence require their products to be differentiated. Such are some of the challenges a start-up Fintech firm may face.
However, more good can come out when start-up Fintech firms and banks work together. Many banks now have a mobile application which allow payment. Convenience will also be increased for customers. OCBC allows QR Withdrawal at ATMs where customers can use the QR code from the Pay Anyone App to withdraw or deposit without the need for a debit or ATM card. Banks have also employed the usage of Artificial Intelligence (AI) to respond to customer service. These examples show that it is possible for banks to digitalise some of their services for customer convenience. The challenging part for banks would be the picking of the appropriate Fintech firm as it would be of a security concern. Fintech firms must therefore be able to clearly voice out on why some of their services and operational features are more superior than the way traditional banking operates right now and how it can be integrated to make the new era of banking much easier and convenient for the users. This way, these start-up Fintech firms can find the needed investments to grow and the traditional financial institutions will be able to keep up with the ever-changing demands of the consumer…
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.