Fintech Keeps Biting Pieces Off Banking Business
The proliferation of financial and payment apps may erode the trust in banks and steal customers with increasing speed, warn experts.
Fintech and payment apps are one important pathway between cryptocurrencies and mainstream finance. And the sector seems to be accelerating and eating away at relationships with banks.
This year, Bank of England included the threat of fintech in its report on the potential stressors for banks, reported Reuters. In an exploration of leading banking entities such as HSBC, Barclays, Lloyds, RBS, Santander UK, Standard Chartered and Nationwide, the central banking regulator made conclusions that fintech is a serious scenario in challenging the banks' business model.
Some compare the rise of cryptocurrencies and fintech to early internet phenomena such as blogging and personal sites, which managed to undermine the monopoly of mainstream media. Now, a similar "Kodak moment" is happening with banks, as users are seeking more freedom.
Fintech still relies on banks for the last mile, but it offers easy access by aggregating bank accounts and making payments more intuitive. And recently, payment app Square added a Bitcoin option, pointing at a possible convergence where users have equal access to banking and crypto currencies.
"In the process, however, it could also have profound consequences for the business models of incumbent banks," said BoE Governor Mark Carney.
The competition from fintech comes after nearly a decade of sluggish banking growth and may be the fatal blow that makes banking adapt or die. According to Carney, fintech may cause " greater and faster disruption" than previously projected.
Fintech may offer cheaper credit and access to other forms of financing, thus undermining banks' overdraft revenues, pointed out Carney. Apps and agile technology may eat at the banking fees of leading British financial institutions, taking a chunk from the $107 million (800 million GBP) per year in charges and hidden fees.
Carney believes users will gain more independence:
"For instance, in the future, it may be possible for a customer to manage their finances with only minimal direct engagement with their banks."
At the moment, banks are burdened by cumbersome legacy back office systems and expensive procedures, while users demand more agility and a lower price of service.
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