Published on January 29, 2016 by Sarath Gollanapalli
‘Cost’, ‘Regulation’, and ‘Risk’ have dominated boardroom discussions at banks since the last financial crisis, but discussions at the World Economic Forum (WEF) at Davos indicate that ‘#FinTech’, an emerging trend, is likely to make it to this list sooner than later.
#FinTech is not a standalone technology or platform but a broad theme that uses technology to offer transparency, speed, efficiency, and economy to the financial services industry. Although BlockChain technology is frequently cited when discussing digital finance, #FinTech is more advanced. It is slowly becoming the underlying theme for better banking and has the potential to impact almost all banking activities, and not just transaction activities (e.g., mobile payments). The areas that are likely to see an immediate impact are remittances, payment solutions, wealth advisory, and P2P lending.
While the comment by a former CEO of a UK bank about banks approaching an “uber moment” sparked discussions on the impact of #FinTech, the forum at Davos validated that this impact would be substantial and is not too far – a 50% decline in the number of jobs and bank branches is something one cannot ignore. Industries such as telecom and auto have already seen similar transformations, having eliminated 40% of their cost bases. A senior banker at the forum predicted that a large number of the 20,000 banks worldwide may not see the next decade, while another industry expert commented that cash may “cease to exist” by then. To add to the above, the IMF recently released a whitepaper on virtual currency, which highlights the prominence of #FinTech today.
Although some critics argue that the shift is a little premature and that senior bankers are still busy grappling with regulatory and cost pressures, the strategic decision-makers at banks cannot ignore the pace at which the digital wave has transformed some of the erstwhile dominant players. For instance, transformations in the music industry or the taxi market are not from a distant past.
Some of the roadblocks that #FinTech has to overcome are cyber security, exuberance of “start-up boys”, and the controversies surrounding bitcoins. However, the key hurdle is the ambiguities surrounding regulation. Traditional banks argue that everyone should be subject to the same set of financial regulation, but #FinTech players are demanding that ‘innovation’ not be stifled. Regulators will have to walk a tight rope to encourage technology, yet ensure that new risks are not hiding under the facade of innovation. They may be inclined to tighten rather than ease regulation – whether these changes will apply only to traditional banks or every financial service provider will have to be seen.
The winners of this change will certainly be those who adapt to this digital wave and cannibalize (if required) than compete – like Apple cannibalized iPod for iPhone only to be more profitable.
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About the Author
Sarath is responsible for identifying challenges and creating solutions that drive operational efficiencies, optimize costs, and build robust risk management systems for banking clients. He also works closely with the Business Development team and service line owners to drive a market-led strategy and marketing innovation at Acuity Knowledge Partners. Sarath has over 13 years of experience in financial services and investment research.
Prior to his current role, he was involved in product management, pre-sales, and delivery. In the past, he has worked with OPI Global (now EXL) and Deloitte Consulting. Sarath holds an MBA from Cardiff University (UK) and is an Associate Company Secretary (ACS).
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