Advancements in technology have forever transformed the relationship that consumers have with their banks. With digital solutions such as mobile banking apps and services merely offered via internet banking (e.g. online chat), consumers today rely increasingly less on traditional bank services that were previously only offered in branches. Furthermore, strong digital awareness along with the numerous channels available for consumers to access and manage their personal finances, have diminished the barriers to entry to the financial industry.
This form of digital disruption has stimulated the growth of the FinTech (Financial Technology) industry, which has been estimated to generate annual revenues of GBP 20 billion in the UK alone. China currently takes the lead with having some of the biggest FinTech firms, dominated by the internet giants Baidu, Alibaba and Tecent. This is due to the internet parent companies intending to facilitate payments on their respective e-commerce platforms when they were initially established over a decade ago.
Whilst FinTech firms like TransferWise act as a P2P (Peer-to-Peer) cross-currency money transfer firm, this merely enables consumers to exploit live mid-market exchange rates in a decentralised manner. Due to incoming European regulations, some firms will now legally be permitted access to banks’ client databases. This will further foster the growth of FinTech firms in the finance sector, enabling them to gain more market share and act progressively as brokers, for financial products offered by banks and other financial institutions. The increased competition that will follow indicates a heightened risk however, that some of these new firms could fail, potentially leaving substantial damage to the stakeholders involved.
More recent and enhanced start-ups such as Monzo, have acquired regulatory approval to offer branchless and solely mobile based banking in the UK. Many other ‘neo-banks’, as they are referred to in the industry, are aiming to differentiate themselves by offering mobile budgeting and investment applications in addition to instant statements on spending patterns and enhanced anti-fraud capabilities. As these services are solely available digitally online, it poses further threat to banks who are already under intense scrutiny from regulators.
Should FinTech firms be regulated as intensely as banks? With technologies such as bitcoin and blockchain already permeating the financial industry, banks are forced to take cost cutting measures in addition to implement digitalisation strategies to retaliate and stabilise profits.
References:
UK Trade & Investment Report 2016: Landscaping UK Fintech.
Click to access Landscaping_UK_Fintech.pdf
Bloomberg: Neobanks Chasing UK’s biggest lenders face battle for survival.
http://www.bloomberg.com/news/articles/2016-09-28/neobanks-chasing-u-k-s-biggest-lenders-face-battle-for-survival.
