Banks And Fintech: Collaboration Or Competition? With the rapid growth and advancement of technology, it has led to the advent of a new digital era.
Technology is becoming a mainstay, increasing efficiency, reducing the need for labour and replacing workers for manual jobs.
Technology is also not restricted in any vertical but can be found in marketing, health, logistics and – of course – the financial sector.
Financial technology or fintech is prevalent in the world today with startups sprouting everywhere and anywhere. However, what exactly is fintech?
Fintech is a technology that seeks to improve and automate the delivery of the use of financial services.
Fundamentally, fintech is utilised to help the stakeholders – companies, business owners and consumers – better manage financial operations, processes, and lives using software and algorithms found in a computer.
Fintech has been able to gain ground and further traction due to the increase in mobility. The high penetration rate of smartphones has made the interaction between consumers and financial institution much more convenient and efficient.
Every digital transaction, be it online shopping, foreign currency exchange, stock investments, or money transfers, is possible at our fingertips thanks to Fintech.
FinTech is very broad and can be further segregated into a few categories:
People do not need to go to banks or credit unions to borrow money anymore, as FinTech companies can now be making loans directly to consumers.
People can send money to each other without the need to turn to banks.
3. International money transfers
4. Personal finance
Consumers can get personal finance advice anywhere.
There are even applications that can help create budgets and saving plans.
5. Equity financing
Fintech companies are making it easier for businesses to raise money by simplifying the process or providing alternatives for funding.
Fintech companies are reaching out to unbanked consumers. Consumers that are unable to get approved for credit cards can get prepaid cards from these companies.
Fintech companies are focused on the distribution of insurances, reaching out to customers that are underserved by insurance.
8. Relationships between fintech and banks
With the rapid penetration of Fintech, many have proclaimed that banks are now facing problems in finding ways to compete with Fintech.
During the Innovfest Unbound 2019, key figures from top banks discussed how FinTech and banks could coexist together. In this panel discussion, it was a consensus that banks should not try to drive Fintech out of the business landscape, but rather find out what aspects the banks should develop internally and what aspects should the banks partner with Fintech.
One aspect that banks can partner with Fintech would be in engagement were “(Fintech) software that allows banks to engage customers in a superior way” as shared by Mr Dennis Khoo, MD, Regional Head TMRW Digital Group, Group Strategy & Transformation – UOB.
“Build the traditional structure, engagement is the Fintech in the world,” as stated by; it is notable that banks have been working with FinTech for years. Jennifer Doherty, Head of Innovation APAC – HSBC, aptly put it, “In the past, (services came) in the name of vendors. They provided solutions for banks which have been incorporated.” Banks have always been outsourcing work to other companies and the services coming to the public view has not changed it.
However, the panellists think that fintech companies that focus on lending money will not be able to last long in the current environment.
They feel that people do not understand the true essence of what makes a bank. “(Banks) are also risk managers as banking is a business of trust, governance and strong regulations to ensure that the banking system is stable.
Fintech companies do not need to bear this kind of risk and (determine) whether there are prudent policies in lending,” as emphasised by Dennis.
Fintech incorporated into banking
To further emphasise how Fintech and banks can work hand in hand, here are some ways finTech has been incorporated into the current banking systems:
With the advancement of AI and machine learning, chatbots have become a popular tool for banks to streamline customer-facing interactions such as answering customers queries or helping to direct customers to the relevant departments.
For example, Erica, the Bank of America’s chatbot, can even provide investment advice to customers. UBS is also using robots to scan customer emails for trading instructions and executed autonomously reducing the delay time from 45 minutes to 2 minutes.
The use of these chatbots not only improves customer satisfaction and reduces costs but also frees officers in customer service centres to focus on value addition.
2. Fraud detection
Identifying fraudulent transactions is the objective of the anti-money laundering departments.
For example, machine learning algorithms can leverage historical records to determine patterns and predict the possibility of fraud and attacks before they occur, reducing manual effort by nearly 50 per cent.
3. Omni-channel banking
With banks shifting to digital channels, bank branches have started to lose their importance. Studies show that the adoption of omnichannel banking is driving several banks to reduce the number and size of their branch offices.
Banks can now make use of digital channels to reach out to a wider audience, which includes the unbanked population.
4. Biometrics Security
One of the new technologies that have been proven radical is biometrics scanning. This provides an extra layer of authentication for transactions that has greater security.
Several banks are investing in biometrics-based authentication solutions that use the forward-facing camera to scan one’s iris or the in-built thumbprint scanners in smartphones to strengthen security.
All in all, fintech can be an inevitable pillar in our lives for at least the next generations. Banks can either choose to embrace it and innovate together or lose the competitive edge over the other banks.