The banking sector and the capital market are undergoing the influence of Fintech every year to a bigger extent. In 2018, venture capital-backed Fintech companies raised more than $40 billion in funding, and are predicted to achieve greater inclusion in 2020.
Though some believed that Fintech will disrupt banking completely in the nearest future, the biggest threat to most of the banks appeared to come not from Fintech itself but from being stuck to traditional banking while the competitors have already started taking the advantage of Fintech banking. The potential threat of losing a significant market share and being driven into irrelevance made most of the financial services institutions take up the revolutionary technology and enter the new phase of financial services industry evolution. The majority of IT companies started offering their expertise in the development and maintenance of custom financial software for Fintech startups and large-scale companies to gain greater efficiency, industry knowledge, and to cash out.
Passwords remain a popular tool, yet biometrics development makes this example of traditional banking one step closer to being obsolete. Who needs a 16-character password that has to include lower and upper-case letters, numbers, and signs like $, # and more? Especially when the authentication can be completed within milliseconds after scanning your fingerprints or iris. Here’s a small list of what biometrics is capable at the moment:
Vein scan (either hand or eyeball);
Internal data (glucose level, heartbeat, other parameters);
Fingerprint scan is by far the most common thing on the market, as many middle-class or lower-budget smartphones already include this function. The latest iterations of Apple’s iPhones, Samsung’s Galaxy S9s, and a range of Chinese devices are already capable of scanning the user’s face and/or eyes to prove the identity.
Forrester survey reveals that 61% of Singaporean financial institutions have already incorporated biometrics, such as fingerprints, iris, and voice scans.
Fintech has gone even further. PayPal, one of the innovative Fintech startups, originally co-founded by Elon Musk is calling iris scans “too old” already. The company offers silicone chips that go beneath the user’s skin. These chips scan the parameters like glucose level, vein patterns, heartbeat, and more to provide multi-factor authentication for any activity that requires additional security.
Distributed leader technologies, widely known as blockchains, have already moved from the shade of public interest and now are treated as paradigm-changing technologies that turn the interaction between Fintech and banks upside down. The research held by Accenture shows that 9 in 10 executives are considering the implementation of blockchain technology into their financial services.
Here's bank’s current stage in blockchain adoption.
Blockchain aims at boosting mutual benefits and reducing business risks from collaboration and mutual Fintech investment banking. Using a decentralized database, banks receive an opportunity to work together on a common solution, keeping their own data security and opening certain pieces of data only when they want to interact and trade. It ensures complete transparency and real-time execution of payments what significantly minimizes the possibility of cyber-attacks as the information doesn’t exist in a centralized database anymore.
Blockchain technology is also very helpful in KYC (Know Your Customer) Compliance. In traditional banking it usually causes delays to banking transactions, entails substantial duplication of effort between banks and third parties, and ends up at high costs. Goldman Sachs Report states that the banking sector can save up to 10% by introducing blockchain technology into KYC procedures. Annually it’s predicted to save $160 million, plus $420 million is going to be saved on employee training.
Despite the big name, Fintech is not solely about technology. The era of new digital solutions that automate processes on each level and decrease the efforts required from the users has brought a new mentality to the game.
Routine bank transactions are not only time-consuming but cost banking services 20 times more than those handled by mobile. Furthermore, 80% of questioned Americans stated that they would rather bank digitally than visit a physical bank.
Ant Financial, Alibaba, TransferWise and hundreds of other Fintech startups are redefining the financial services industry, how people use their accounts, how much time and effort they spend on handling regular financial services: transferring money, taking a loan, etc. And it will go further: Fintech banking is going to be embedded in cars that will be able to pay in a drive-through themselves and generate their own income. Voice-based smart assistants will save, pay, or invest for you and smart glasses will show the price of the items you look at.
Though some banks slowly realize that strong interrelation between Fintech and banks has already come into force and customers need to become more digital, there is no other way to guarantee reliable, fast, and effortless customer experience but to become one of Fintech followers.
The whole vibe of transparency and client-first mentality is at the core of new successful businesses, especially in finances. People would rather trust someone progressive with their money, and that's the reality that legacy institutions are actively learning to cope with. The process is still breaking each minute, the implementation struggles a lot, yet the thing is on the move with Fintech startups indirectly pulling strings.
Fintech banking doesn’t aim at killing banks, brokers, and agents but killing the inconveniences and obsolescence associated with traditional banking. If Alibaba, TransferWise, Xero, and Credit Karma didn’t exist nowadays, there wouldn’t be any need for banks to seek an alternative to traditional banking. But the goalposts have been already moved and changes are inevitable. The future belongs to Fintech startups and incumbent banks that have financial services embedded in technology.
Banking services must start exploring new technologies that leverage digital tools, progressive analytics, and consumer data.
Analyzing the examples of Fintech, we can say that the financial technologies will stimulate the evolution of the banks that see potential in change. Legacy banks will still wall off if they miss the right moment to innovate, but the most brilliant minds will thrive and incorporate new startups with new technologies to stay in business and provide more value to the customers.