FinTech is transforming the banking industry and granting millions of people access to financial amenities for the first time, as a result of new banking models that are evolving with FinTech startups. Technology companies are becoming the face of the banks and the traditional bankers are getting limited backend utility providers. In this article we will discuss how FinTech is revolutionizing the banking industry, what will be the future banking models and our business schools and universities are preparing future bankers for these changes.
Henri Arslanian, a FinTech thought leader says that, “we are going to one of the biggest transformation in financial history the FinTech revolution and it is going to transform banking. This revolution have significant impact on financial industry, it is reshaping the industry and the future bankers will be very different from the bankers of today. They will have different personalities, educational background and different skill sets”.
“Fintech” stands for financial technology, is the innovative use of technology in the design in delivery of financial services and its transforming the banking mode, things from artificial intelligence, peer to peer lending, big data, block chain, crowdfunding, digital payments, and robot advisers.
Why is it happening now? Historically as technology involved the banking industry it was reasonably good and integrated these new technologies to better serve customers. But all of that changed during the financial crises of 2008, banks were busy in dealing with a disaster situation, frequent new rules, regulatory requirements, and fines imposed upon them. Innovation became very important, at the same time some of the most game changing technological innovations, they have transformed the way we live. They have become part of our everyday life just think about iPhone, Uber, WhatsApp for example. The gap created at that time what your banks were offering you and you as customers expecting from your banks especially from user experience and convenience perspective. And that gap is what the FinTech industry is tackling with that now.
That gap was so big that even nontraditional banking players decided to jump in and capturing this opportunity mainly technology firms. Such as Facebook have taken 50 different regulatory license as Facebook Payments Inc., these licenses that would allow Facebook users to transfer money via the messenger app in different states of USA. Amazon offering student loans and other financial services from its platform, Ali Baba’s financial arm and financial launch a money market fund they have become the third biggest money market fund in the world. That fund have more than 150M investors, who have an average investor less than a thousand dollar each, many of them have their first investment ever. Tencent QQ Messaging app has become most of the common source to transfer money. It not only allows you to buy insurance products or invest in funds directly from your smart phone but also but also book your next doctor appointment, order a taxi, donate to charity, and even find a date where ever you live.
The financial platforms of the future won’t be traditional banks, but more along the lines of technology firms. My one-year old son in the future will probably open a bank account not with standered charted, ABL, HBL or UBL, but rather with a Facebook or Apple. These technology firms have daily existence touch points with customers, and to certain extent they have customers trust and confidence. If you are comfortable enough to share your family photos on Facebook or WhatsApp, what is to stop you from also using them to transfer money to your friends and family.
If you buy all your daily necessities on Amazon, Alibaba or Draz.pk, you could also buy insurance products using their platforms. There now thousands of new and dynamic FinTech startups, they are offering products, which used to be offered previously by traditional banks, and which are being replaced by peer-to-peer lending platforms that now offers consumers and alternative to loans that used to be previously available mainly at banks. Robot advisory platforms offer consumers asset management solutions that are not only more transparent in what they charging, but also substantially cheaper.
It’s very unlikely that you will see the FinTech startup becoming deposit taking institutions where the actual assets are held, but they will be very happy to control the front end, while leave the boring backend to traditional bank things like reconciliation, regular reporting etc. In this may have created the new banking model of the future where traditional banks are handling the backend basically becoming utility providers to the technology firms and FinTech startups who control the front end and customer experience.
This FinTech revolution is also bringing a lot of other positive developments one of the most important being financial inclusion. Currently in the world we have more than two billion people who are completely unbanked — these are individuals who have no access to bank accounts, no way to borrow money, and they only have a way to save their money in their pillows or under their mattresses. Now, for the first time in the history of the modern age we are able to offer these individuals financial services. This is the positive difference that according to the World Bank in the last five years, seven hundred million people went from being unbanked to being banked. And this is just the beginning as the FinTech industry is continuously working on transforming financial services are being delivered and consumers will be the biggest beneficiaries.
The banking landscape is changing and to survive banks will need to evolve and adopt FinTech in the design and in the delivery of their financial services. Future bankers will be designers, programmers and creative thinkers.
There is a point of concern, however, in that our business schools and universities are not developing future bankers, but rather still focusing on traditional bankers — an area that it is estimated will see a reduction of between 20% to 30% in the not too distant banking future. As such, we should plan accordingly if we want to survive in future. Our universities should start offering courses on FinTech, financial designing, and financial programming to compete in future.
*Mazhar is a senior digital banking and microfinance and development finance expert, holds a MBA degree in Marketing, certified in microfinance (Distinction) from Institute of Bankers Pakistan, development Finance from World Bank Group, and has a 12 years of experience in main stream banking, digital banking and development financing.