in changing the economic situation of underbanked populations in Bangladesh and Kenya. In Bangladesh the M-Pesa equivalent is bKash which is focused on mass-market mobile financial services. While Bangladesh offers a strong micro-finance industry (small-scale unsecured credit), bKash works like M-Pesa, sending payments quickly and easily to others.19
In 2013, International Finance Corporation (IFC), a member of the World Bank Group, became an equity partner in bKash and in 2014, Bill & Melinda Gates Foundation also invested in bKash to ensure access to a broader range of financial services for the low-income masses of Bangladesh to achieve broader financial inclusion.20
Looking at the impact of FinTech solutions in Africa it is important to keep in mind that in sixteen African markets, there are now more mobile money accounts than bank accounts.
Thus, FinTech in developing countries is not only about making existing services more convenient: it is creating new infrastructure, and providing for greater inclusion of millions of people in the real economy. Since the markets addressed are enormous – and admittedly represent huge potential opportunities – one can truly say that FinTech is “changing the world for the better”.
Banks, Beware!
FinTech has already unveiled many “disruptions”, and is probably keeping many more under its belt. Is there enough space for these innovative new entrants and traditional institutions alike? What are the concrete threats to the latter?
“People need banking, but they don’t necessarily need banks,” Heather Cox, Citi’s Chief Client Experience, Digital, and Marketing Officer said during IBM InterConnect 2015. New and more convenient and customer-centric services are changing the landscape, while customers are becoming more demanding. No bank can deny this: the proliferation of niche players focusing on certain services makes it more and more difficult for traditional financial institutions to keep ownership of their customers. The time when financial institutions could bundle their services together without transparency and still enjoy full loyalty from their customers, is coming to an end. Admittedly, this phenomenon only applies to a certain generation in certain areas, and even most of my “millennial” peers are still using their bank’s services for all of their financial operations. We are not there yet. Actually, this is probably just the beginning of what is forecast to be a financial revolution.
In his annual letter to shareholders in April 2015, JP Morgan’s CEO Jamie Dimon raised the alarm: “There are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking.” In spite of the apparent hegemony of these large establishments, more and more traditional institutions are becoming conscious of the threat innovative players represent. Would it be a smart move to try and beat them? Nothing is less certain. Start-ups have certain advantages over financial behemoths. Their small size, lean culture, technological progress, and ability to attract top talent give them a competitive advantage that is inherent in their very nature.
Disrupted, Reimagined
You know what they say: if you can’t beat them, join them. The smartest move is to collaborate, not to compete – and many banks have understood this. They are creating incubators (Barclays’ accelerator), setting up specialized venture funds (Santander’s Innoventures), creating partnerships (Metro Bank and Zopa), or simply acquiring start-ups. Strategies differ but the goal remains the same: survive, and even profit from the digital disruption.
Yes, the big players will need to abide by start-ups’ rules, in some ways. But this may actually be beneficial. What is better than having someone inventing everything right in front of you, and allowing you to just buy it? This is a once-in-a-lifetime opportunity for banks to obtain advanced capabilities and modernize inefficient infrastructure without having to develop it in-house. In other words, it only requires an open innovation mind-set for banks to join the game.
In this context, different scenarios can be imagined. In its report entitled The Future of Fintech and Banking: Digitally disrupted or reimagined?21 Accenture details what it considers to be the most probable ones. Scenario 1: banks continue to believe in the supremacy of their business model and fail to adapt, hence losing out to new players. Scenario 2: they understand the importance of customer experience and embrace innovation within their business model, mainly collaborating with new entrants. The second option seems far more likely, now that banks are expressing their awareness and laying their cards on the table. Let us hope this will result in many win-win situations for the financial service sector and its global customers.
Current Trends in Financial Technology
By Alexandre Glas
Co-Founder and CMO, The Assets
and Marcin Truszel
CEO, Kontomatik
For a very long time now banks have had to compete primarily with other banks. These were the times of mass branch openings, bold marketing campaigns, and ongoing competition for the highest interest paying accounts. In 2015 FinTech became not just “a” buzzword but, arguably, “the” buzzword and this shows no signs of changing. Now direct competitive pressure for banks is not only coming from other banks, but from thousands of FinTech start-ups and powerful tech giants with enough capital to cherry pick the most interesting areas of banking to leverage their own business models and millions of customers.
For decades, universal banks have been serving the full scope of financial services. In most countries, competition in the banking sector was moderate, since the bulk of jurisdictions had just a few large banks that accounted for quite a large share of the market. It was thus rarely possible to see a bank that had grown from a small one to a large industry player. While banks try to offer a wide scope of services, there are many innovative FinTech companies that just focus on the development of one simple service with great user experience. This certainly makes the lives of banks harder, as it is simply impossible for a large organization to achieve sustainable growth in every niche of the financial services sector. This development refers to the “unbundling” trend, meaning that FinTech firms focus on distinct areas of banking with the goal to become the “best of breed” providers in these areas. Therefore on an aggregate level there is a danger that the banking service offering overall is “unbundled” by the best FinTech providers in each category.
While the residents of developed countries certainly enjoy doing their banking activities from the comfort of their homes with the benefit of online banking, we can still see that online banking is not widely present or not present at all in emerging markets. However emerging markets will experience quite rapid growth and substantial improvement in financial services provision. This process should take substantially less time than it took developed markets to achieve. This will be quite a similar scenario to what has already happened with the development of internet networks in such countries. While residents of developed countries have been steadily moving from one type of connection to another, it is not at all unusual to see developing countries quickly jump from a common 56k modem to high-speed wireless connections straight away. In other words, developing countries tend to start and stay on the low-end technology for longer than developed countries; however, they then skip many stages and quickly adopt the most developed product.
Regulation Supporting the FinTech Sector
2015 began with exciting news coming from the United Kingdom, where the government announced the initiation of a data sharing and open data initiative in banking (open Application Programming Interface (API) initiative).22 UK officials are planning to implement a detailed framework for an open banking data environment
Source: http://www.totalpayments.org/2014/08/05/bkash-bangladeshs-m-pesa/.
Accenture, “The Future of Fintech and Banking: Digitally disrupted or reimagined?” http://www.fintechinnovationlablondon.net/media/730274/Accenture-The-Future-of-Fintech- and-Banking-digitallydisrupted-or-reima-.pdf.
Source: https://www.gov.uk/government/consultations/data-sharing-and-open-data-in-banking-call-for-evidence/call-for-evidence-on-data-sharing-and-open-data-in-banking. The application program interface is a set of routines, protocols, and tools for building software applications. The API specifies how software components should interact. See the chapter entitled “Embracing the Connected API Economy” for further detail about APIs.
