Does the Fintech Revolution Signal the End for High-street Banks?
The financial services industry is one of the remaining sectors that technology still needs to defeat and conquer. Over the past year, it seems that every passing week brought with it a new disruptive technology start-up; from fintech to regtech and medtech – the traditional, monopolised and somewhat draconian industries with their often archaic processes were being challenged.
The fintech industry in particular, has exploded to the point where the major high-street banks are beginning to feel the heat. In fact, a report issued in 2016 by Capgemini found that 63% of customers that were using fintech products were more likely to recommend them to friends, then those using traditional financial products or services. It has also been reported that despite the banking industry being heavily regulated, fintech companies are expected to capture 17% percent of banks’ revenue by 2023.
These facts do not bode well for the banks. The range of potential that financial technology companies have to disrupt the banking industry is vast, at present there are more than 12,000 of them offering lending, foreign exchange, loans and mobile payments among other niche services.
Up until recently, banks appeared to be ignorant towards the imminent threat that they were facing. They have responded by using fire-fighting tactics such as creating digital customer-facing roles, partnering with tech starts-ups, building their own platforms to challenge the newcomers or invest money into new services coupled with clever marketing strategies to win back the hearts of customers. If they can’t beat the newcomers, they want to join them.
The truth is, the high-street banks have been out of favour for a long time. Over the years the public has become increasingly concerned about questionable practices, hefty fees and hidden charges – not to mention poor service; these reasons coupled with the sizeable bonuses that those in senior positions were receiving – despite the financial losses that they had claimed to have endured leading to branches closing and staff being made redundant.
Not to mention their limited accessibility; its only in the last three years that some banks and buildings societies have introduced apps – before then they relied on slow telephony services and clunky online banking.
Like a neglected housewife, it seems that people across the globe were more than ready to be lured away by shiny new fintech start-ups. The bank’s tactics to compete in the new markets are unlikely to prove fruitful; they are too big to start becoming flexible, too encumbered with costs and too restricted by regulations. Perhaps the major banks haven’t yet acknowledged how much trouble that they are truly in?
Last year, top EU and UK officials agreed that newly established banks should not be subject to the complex policies that place a disproportionate burden on these new-comers with far more simple business models.
“The best way to promote competition is to create a level playing field for new and existing banks of all business models and sizes. But having a ‘one size fits all’ approach to regulation hinders rather than helps competition,” said BBA chief Anthony Browne.
The internet has been leveraged by the new wave of fintech businesses; from peer-to-peer lending that matches lenders to borrowers and crowd-funding websites, to digital banks and international transfer services – high tech platforms are being created that offer faster, cheaper and more secure services. Innovate Finance reported last year that the UK was number 2 in the world for funding in the fintech industry – with £675 million of the global £8.9 billion being raised here; it’s a profitable industry to invest in, and the number of businesses in this realm just continues to grow.
Banks are simply not evolving as quickly as they need to, the way that banks have behaved has resulted in them being disjointed, costly and inconvenient. The global credit crisis that was experienced in 2008 -2009 meant that banks spent a great deal of time looking at regulatory compliance, meaning that they were behind when it came to innovation.
The current fintech industry is about providing solutions and making people’s lives more efficient – that’s an attractive prospect, because those solutions are in high demand. Young start-ups are challenging the high-street banks all over the world and the traditional methods that they have used mean people and businesses are charged extortionate rates and fees for moving money internationally. It’s 2017 and moving into a digital and technologically automated realm means that businesses like ours can offer fast, convenient, affordable and far more secure services.
The internet has essentially made the ‘middleman’ obsolete. The problem with finance, is that the industry had the highest volume of middlemen. Everyone involved has a legacy of charging high fees for standard practices; from banking, financial advice and lending – they all came with a price, as well as extra fees and charges. Just take overdrafts as an example – £1.2 billon was the figure that authorised overdrafts fees amounted too last year. One in ten people were reported to have accepted living in their overdraft as ‘the norm’. Banks have been accused of profiteering from these situations that can have long-lasting effects on individual’s finances and credit ratings, rather than providing effective solutions.
In conclusion to the question, ‘does the fintech revolution signal the end for high-street banks?’, the Capgemini study also unearthed the fact that 80% of customers have experienced good customer service from fintech companies. Most high-street banks received over 250,000 complaints about customer service alone each year.
So yes, ultimately, the end is nigh for traditional high street banks. They can’t beat the new wave, and so far, they have been unable to compete either, with digital strategies facing both cynicism and criticism; but they have recognised that backing them is going to be a strategic financial investment in some cases. The state-of of fintech currently means that early adopting consumers have the opportunity to help shape the industry and the services it offers and way it operates; when everyone involved wants to make it something entirely consumer-centric, you know it’s an industry to get excited about.
Written by: Ali Alani, CEO at Imperial FX, helps businesses and individuals transfer money anywhere in the world and in any volume – quickly, easily and inexpensively, a London-based fintech startup.