The Digital Revolution is transforming just about every aspect of modern life, and finance is no exception. Recently, financial institutions have been feeling the effects of technology-driven applications. The product of the marriage between finance and technology is “FinTech,” a shift in global processes that is rapidly altering how we manage our money.
In its Global FinTech Report, PwC says “FinTech is a dynamic segment at the intersection of the financial services and technology sectors where technology-focused start-ups and new market entrants innovate the products and services currently provided by the traditional financial services industry.”
In 2013, FinTech generated $4 billion in investments. A year later, that amount tripled. That’s why PwC predicts that more than 20 per cent of businesses specializing in financial services will be at risk due to FinTech companies by 2020.
Consequently, a number of ideas have emerged to predict the extent of this impact consumer banking and fund transfers and payments will be the areas of financial services that will be most impacted.
A New Way to Bank
Rahim Madhavji, president of Toronto-based Knightsbridge Foreign Exchange, sought to turn the valuable knowledge he gained as an investment banker at the Royal Bank of Canada to bring more value to consumers when exchanging currency.
“The rate we pay is between 2½ to 3 per cent higher because at the retail level, the banks tack on a fee. While your restaurant bill comes with food, liquor and tax recorded separately, your currency conversion comes with just a total,” Madhavji told the Toronto Star.
Since FinTech companies don’t answer to regulators, they can provide lower costs and increase the overall quality of services. They also utilize advanced analytics to assess risk, rather than simply a credit score or a banker-client meeting. This makes the process more holistic and provides objective approach to lending services, resulting in a higher rate of approval.
FinTech vs Big Banks
Experts say FinTech companies will never replace banks. “No FinTech product comes close to matching the convenience and security of a current account at a bank,” according to the Economist. In fact, banks may even benefit from FinTech companies’ product lines. For example, a service that offers debit or credit card purchases to small businesses will boost the banks’ transaction volumes.
Other areas of financial services can benefit from partnering with FinTech companies too. Robo advisors, for example, can improve customer service by offering their clients software to help them manage their investments. Costs can be cut significantly, operational inefficiencies reduced, as well as see customer retention rates and revenue increase. According to the results of the PwC Global FinTech Survey 2016, 73 per cent of respondents believed that the rise of FinTech firms could lower costs for their industry and more than 55 per cent predicted improved retention of customers and additional revenues.
The unquestionable truth is that technology is at the heart of most industries nowadays. According to PwC, “FinTech is more than technology. It is a cultural mind-set. Companies hoping to flourish need to shift their thinking to better meet customer needs, constantly track technological developments, aggressively engage with external partners and integrate digitisation into their corporate DNA.”