How Fintech Will Change Banking

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How often do you go to the bank?

Your parents’ answer would be at least once a month, perhaps even once a week. However, to the younger generation, the answer is almost never.

To physically go into a banking institution is an outmoded practice, something one would only do if they wanted to make drastic changes to their account. We withdraw currency at an increasingly infrequent rate than our predecessors, and many new account holders don’t even get issued a cheque book.

Instead, we use websites, mobile banking apps, and external payment systems to manage our finances – increasingly independent from our financial institutions.

Financial technology, or fintech, has begun to transform how we manage our money, and the $19bn dollar rise[1] in fintech startup investment over the past three years indicates just how influential that transformation may turn out to be. Consulting firm Accenture highlights the three common themes of innovation in the financial services industry: openness, collaboration, and investment.

The challenge for banks is therefore to “embrace” these principles in order to disrupt their own business model as opposed to allowing third-parties to disintermediate them [2].

Many of these third-party fintech startups have centralized their efforts in the mobile sector, highlighting how important our dependence on our phones is to our adoption of new technology.

One mobile app, called Bud, delivers “financial services together onto one app so that you have complete visibility of all your cash transactions in one place”. Users are able to aggregate their accounts and credit cards independent of which financial institution they bank with, providing them a hassle free method of transferring money between accounts and making instant peer-to-peer payments. Bud has also partnered with other third-party investment platforms and integrated them seamlessly, thereby, in the words of founder Ed Maslaveckas, “created an independent, universal banking app for my generation and anyone else who wants to make their money work harder for them.”

Why has Bud been successful? Many tech strategists believe it is because they have aligned themselves with the three themes of fintech innovation – being open through flexibility to users, collaborating with other services, and, as a startup, being in the position to accept investment.

Foremost among those themes is the flexibility to users as well as the ease of adoption. Without accessibility, many of these new fintech innovations fall prey to the same downfalls of traditional banking, such as misunderstanding and delays in service. Instead, fintech should aim to improve the way people perceive their dealings with their banks, and “change the tone” of the financial services industry.

Governor of the Bank of England, Mark Carney, noted how influential fintech can be to banks, and said it will “…shake the foundations of central banking and deliver nothing less than a democratic revolution for all who use financial services.” [3] The Bank of England itself is devoting huge sums into ensuring that fintech becomes a tool of enhancement, not disruption.

This idea that fintech can “democratize” finance is not a new one, but it is important. It implies that control of one’s personal banking has for so long been taken out of the hands of the everyday consumer, and put in the hands of financial institutions. Though there have been concerns over the security and legitimacy of finances if fintech innovations like mobile banking become increasingly commonplace, many industry experts have acknowledged that this is indubitably the direction the industry is going, and advising everyone to simply run with it.

Written By: Fiona Spencer

[1] BBC (July 2016) http://www.bbc.com/news/business-36702175

[2] Accenture (2016) “The Future of Fintech and Banking: Digitally disrupted or reimagined?”

[3] The Guardian (June 2016) https://www.theguardian.com/business/2016/jun/17/bank-of-england-aims-boost-fintech-sector

 

 

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