Who and What?

Is it a battle?

An “industry under siege,” and there is no going back. 

Simply, FinTech’s impact on the traditional banking industry. 

Remember? The bank, you recall, where you make and receive loans, keep your money in a bank account, get credit cards, etc. Also, investment banks, such as JPMorgan, Goldman Sachs, etc.

Those.

So, FinTechs have swept into the financial sector, disrupting it by providing customers with various innovative products and services. 

Examples include mobile payments, mobile banking, e-wallets, and chatbots. FinTech companies, at their heart, are inherently consumer-centric from a technology perspective—companies using sophisticated technologies, such as blockchain, artificial intelligence, biometric sensors, and open banking. The list could go on.

The traditional banks and financial institutions meanwhile offer personal banking by allowing you to email them (or worse, meet a human being), issue checkbooks, and use ATMs which can even give you… cash? I cannot recall when I last walked into a physical bank.

Why and Where?

The reputation of traditional, brick-and-mortar banks and financial institutions isn’t just one of boredom – it is antiquated. “One size fits all.” Financial customers are now naturally looking for more accessible, flexible solutions and experiences, and complex, time-consuming banks are not meeting those needs. 

You are likely already be using some form of technology provided by a FinTech. You may not even realize it: contactless payments, having that Starbucks card in your wallet. Using PayPal. 

I recently read an article from 2021 that said, “Will FinTech last?” – that felt like reading something written a decade ago. I don’t use cash in a city like London; I don’t want to either. Like many, I prefer contactless payments; as a result, cash is used far less as a payment method in many places.

Many places – but in far more, cash is required.

Unbanked households have neither a checking nor savings account. They list their main reason for being unbanked as “not having enough money to keep in an account.”

In just the US, according to Federal Reserve data, 19% of American households making $100,000 or less are unbanked or underbanked (2019). The fact this number is so high in a country such as the United States is staggering.

In 2017, the World Bank reported 1.7 billion unbanked adults worldwide. 

By far, these people are from developing nations.

Traditional banking has never worked in these jurisdictions. FinTech offers a potential solution. Cash isn’t required, and traditional banks are therefore not required. Everything can be done using things like mobile money and FinTech banking. The increase in the use of mobile phones in many African nations is an example of FinTech’s potential. Out of those reported 1.7 billion unbanked adults, 1.1 billion now own a mobile phone. FinTech provides financial inclusion to millions of people who have forever lacked banking facilities. However, cash remains dominant, at least for now, as it is entrenched in the developing world.

When?

Now. 

The global FinTech market was valued at $6.5 trillion in 2021 and is estimated to grow at a compound annual growth rate of 13.9% between 2022 and 2028 to reach $16.65 trillion. That is an amazing statistic.

To bank the unbanked, FinTech leaders and traditional financial institutions need to work together to reduce and address the specific needs of these regions and reduce the barriers to banking.

Fortunately, there are signs the collaboration is now happening. Visa and Mastercard are an example of two traditional financial institutions now partnering with FinTechs to reach many of Latin America’s unbanked populace. AXA has partnered with MicroEnsure to extend insurance to new customer segments in emerging markets. There are several others.

By partnering with the nimble, innovative, and sophisticated FinTechs, the traditional banking world is exposed to a more extensive potential customer base than ever before. According to Benchmark International, 82% of traditional financial organizations plan to increase their collaboration with FinTech companies in the next few years.

The battle is over. There is no going back. 

Let’s don’t let a good thing die.

Chris Garrod – July 2022