As the saying goes, “Nothing lasts forever.” This is the case with traditional banks and financial houses with their big and massive structures, from Wall Street in the United States to Bangalore in India. Banking as we have come to know it is changing. The emergence of Financial Technology (fintech) companies is causing big ripple effects in the financial sector. According to Investopedia, “If one word can describe how many Fintech innovations have affected traditional trading, banking, financial advice and products, it’s “disruption.”
Threat to Traditional Banks
Unlike traditional banks, most fintech companies have streamlined their service offerings to focus on a few ones they can handle effectively, with specialization in payment facilitation, money transfers and loans, among others.
Recently, a new connection on LinkedIn chatted me: “Do you know you can get a loan in just 3hrs, with no collateral, no guarantor and with low interest?” Sounds too good to be true, right? But it’s possibly true. It used to be that to access a small loan you had to go through the rigors of Five Cs of Credit: Character, Capacity, Capital, Collateral and Conditions to satisfy your bank relationship officer that you were credit-worthy. These days, fintech can develop faster and automated credit screening processes through access to databases for background checks and credit history with products like Infinicept EZMATCH and other global screening services.
Impact of Cloud Computing and Foreign Direct Investment
New start-ups can easily leverage infrastructures and computing platforms offered by Cloud Services Providers like Amazon Web Services (AWS), Microsoft Azure and others. Pay as you go scalability features offered by these companies makes navigating capital requirement waters easy. In addition, most fintech companies also access funds from local and foreign sources, which further makes it easier to play in the financial ecosystem.
Credit Card Involvement
Major credit card companies like American Express, Discover, JCB, Mastercard and Visa also have their roles to play in regulating the activities of fintech and providing payment platforms. All card-processing entities must be certified compliant with Payment Card Industry Data Security Standard (PCI DSS) by a Qualified Security Assessor in line with card brand guidelines. To start processing online transactions, Fintech companies can subscribe to payment gateways like Mastercard Internet Gateway Service (MiGS) or Cybersource.
Employee Poaching
High staff turnover currently being experienced by banks in countries like Nigeria could be traced to the emergence of fintech companies within the last few years. I could count a number of my colleagues that recently left banks for fintech companies. It goes without saying that they got better offers.
The Future of Banking
All things considered, in my view, one thing is sure: brick and mortar banking will gradually fizzle out. Most banks are now unbundling their services and providing scalable, customer-centric and B2B banking services. Instead of competing, banks are now collaborating with fintech by providing acquiring and settlement services through the deployment of Application Programming Interfaces (APIs).