Financial Services Sector
Fintech, a term typically describing the small financial start-ups competing with established financial institutions, is increasingly playing a role in our business and private lives, making use of analytics, mobile platforms, digital technology and more. With increased consumer expectations and heightened security concerns, interest in the fintech sector is at an all-time high.
Fintech vs. Traditional Banking
Though there’s much hype around financial technology firms, and they’re certainly shaking up the financial services sector as a whole, many experts don’t believe they pose an immediate risk to the systems already in place. Including services such as peer-to-peer lending, crowdfunding, and app-based payment tools, fintech developers are forcing financial services to evolve into a more customer-centric sphere than previously experienced, and many customers are more than happy to bypass the haughty attitudes of financial institutions of old and deal instead with innovative and vibrant fintech services.
The fintech sector is, however, still tiny and though perhaps encouraging traditional institutions to change more quickly than they might have otherwise, fintech alone won’t be dominating the financial services sector anytime soon. Of course, there are a few progressive financial institutions that aren’t waiting for the future competition but instead are merging their brands with fintech firms and helping them go mainstream. This combined effort provides a unique benefit to both old and new as the disrupting fintech firms foster better customer engagement and original products while the conventional financial powerhouses support the union with their resources and networks and provide responsible and trustworthy foundations.
Rules & Governance for Fintech Organizations
But just because fintech isn’t yet competing directly with many of the larger traditional financial institutions doesn’t mean it won’t in the future. For this reason, some countries are being cautious with their fintech regulations, concerned that they might repress a promising sector but equally aware of the necessity for proper controls and security. In the US federal regulators are considering a new regulatory framework for fintech organizations, while various states have already implemented their own guidelines. Since digital currencies and blockchain form a fundamental part of many fintech products and services, regulating the fintech industry as a whole becomes an intricate web.
With the recent hacking of Tesco Bank in the UK, however, it’s become apparent that regulations must be put in place, and quickly. After 20,000 customers had money fraudulently taken from their accounts, the UK’s largest grocer saw its stock dropping by 3.3%, but aside from the action required to repair the damage for this particular attack we’re left worrying which other fintech services that we rely on may be threatened. Top regulators for the financial industry are already promising stringent rules and governance measures for the fintech sector, and it’s likely, if not necessary, that the full spread of financial laws will be applied to fintech organizations before long.
Where to Next?
(Infographic Source: Capgemini)
The future of the fintech industry isn’t yet clear, though most are confident that fintech will have a substantial role in years to come. As traditional financial services organizations explore strategic advances to ensure they remain competitive, fintech solutions continue to blaze the trail, sometimes providing inspiration, and yet other times serving as a cautionary tale. The World Fintech Report 2017 finds that already 50.2% of global banking customers are using fintech products or services, and in fact, many are using solutions from a range of fintech providers suggesting a threat to traditional banking loyalty. It’s unsurprising too that the technology is more popular with younger, affluent, tech-savvy users looking for value for money over a one stop shop. Further, it appears that emerging markets typically show the highest adoption rates, with China at 84.4% and India at 76.9%.
As the overall financial services sector undergoes a dramatic shift, the consumers often come up trumps as they’re provided with a range of services both old and new to suit differing risk appetites and product requirements. There is indeed much work still to be done by those in the industry and those who manage and govern it, but for a while yet we’ll see a burgeoning market.
By Jennifer Klostermann