Customer centricity has been driving innovations in the financial services industry. Savvy digital consumers want personalized services that are more convenient while still being secure. Shifting from product thinking into customer-centric offerings needs agility, speed, and the ability to innovate. Monetizing social media platforms has become an opportunity to diversify firms’ income, especially through engaging millennial consumers. FinTech firms have emerged as a result, funded by venture capital and traditional banks. Global FinTech funding has grown from $12 billion in 2014 to an all-time high of $19.1 billion in 2015.
Banks have liquidity, a large customer base, a reputation for stability, and experience with regulators. However, FinTech companies have the capacity to innovate, technology expertise, and are more agile than traditional banks. They also face less regulatory pressure and don’t have to manage the complex legacy systems that most banks do. Partnerships between banks and FinTech companies are usually win-win scenarios that off a simpler and more rewarding user experience.
The FinTech revolution has resulted in several innovations in the way we complete transactions. Advances such as contactless cards, mobile payments, wearable apps, improved mobile banking, mobile-only banks, and cardless cash at ATMs have all made financial transactions more convenient and less expensive for the consumer. Online lenders that depend on banks for funding have made getting loans online seamless, cheaper, and easier than ever before. These lenders have found new ways of assessing risks such as social media, utility bills payment history, and other sophisticated algorithms.
The rise of smartphones and mobile apps have changed the way people bank and shop. Retailers have realized they must make shopping for products online informative and simple. Banks have harnessed new technologies and are playing an important role in creating sustainable programs and reaching underserved markets. As per the World Bank’s Global Findex, 721 million adults gained access to new financial accounts from 2011-2014. Customers opened most of these new accounts at banks. This access to affordable, mobile financial services will improve the lives of those who couldn’t open accounts before. Consumers will now enjoy better savings options, easier access to credit, and cheaper remittances. The FinTech industry has also been responsible for helping on-demand business, such as car booking services, grow.
Although banks have a huge head start in lending, they’re still watching FinTech startups closely. Several banks posted shrinking revenue in Q1 2016. Many are either joining together to profit from mergers, or partnering with startups to explore new technologies such as Blockchain and Robo-advisers. The former reduces the time and cost to process transactions, and the latter can help retail investors manage portfolios with little to no human intervention. However, the FinTech revolution brought with it undesired costs as well, such as an increase in global card fraud, especially online. Investments in innovations, meant to acquire and retain customers, have outpaced the ones to combat fraud and cybersecurity issues. Banks now have no choice but to make biometrics a priority. Also, many FinTech startups have been shut down or have had to lay off staff, due to either failure to generate profits or legal reasons.
Regulators, especially in countries with major financial centers, are keeping themselves updated with the latest developments in FinTech. They’re trying to manage innovations without stifling them, while also making sure to protect consumers and investors and keep the financial system stable. They’re aiming to create a framework for the FinTech industry by encouraging responsible innovation that is sound, reliable, and has the potential to promote growth and competition. Collaborations and acquisitions between banks and FinTech firms are likely to continue under these regulations. However, countries are expected to increase their efforts in collaborating on regulations. Universal standards for the FinTech industry could reduce duplicate investments and create more successful alliances. This could result in a unified financial world where people and businesses can trade goods and services across the globe, with cheaper rates, more convenience, and less risk.
Maher gained his banking and payment industry expertise at Citibank and American Express. He later attended industry events on Payments and Blockchain and expanded his experience to retail industry. Maher is providing his opinion among the evolvements in the Payments space.