Fintech vs. Banks - Closing the Gap
Written By: Ariela Karp
The enormity of Fintech and its implications on society and the finance industry are not yet fully understood. What we do know is that it’s changing everything we believed to be traditional and static. The digitalisation of everything has altered the nature and the trends of our wants and expectations of financial products and services. Fintech companies are the startups that exploiting this new reality.
Some Fintech companies seek to circumvent the consumer-bank relationship: Many of these products are even used pretty widely, like Google’s Google Wallet. The products these companies offer are popular because they are so well-suited to consumer demands. However, the convenience they supply disrupts the way we, as consumers, behave. Such disruption of the basic infrastructure of the market changes the architecture of the whole market, which then adapts to suit those new consumer needs.
In other situation, banks are heavily investing in fintech, with the opening of Fintech hubs, incubators, and accelerators. Whether independent or backed by multinational financial conglomerates, the changes in human behaviour created by Fintech companies and their applications open the doors to new issues and questions that need to be addressed.
Fintech companies currently may think that they a substantial leg-up on traditional banks and banking services because they aren’t bound to the regulations that impede unfettered banking, but this may not be the case. Further, while many individuals who have lost faith in banks may see Fintech applications as a solution, the lack of oversight or regulation, or its proper implementation, may put consumers at serious financial risk.
The growth of fintech raises ethical questions regarding the responsibility and accountability of financial companies toward its clientele, a large portion of which may not be sufficiently financially literate to appreciate the risks.
Moreover, while regulations are often designed to make sure that established financial institutions protect themselves from online attacks, smaller Fintech companies may be at risk for hacking. Additionally, whereas established banks may have access to federal insurance programs, fintech start-ups might not. In these situations, how should risks and liabilities be spread amongst the customers and the start-ups, or will Fintech companies contract themselves out of liability completely?
Fintech innovation seek to bridge possible gaps between banks and the market by taking an “out of the box” approach - the ‘box,’ in this case, being traditional banking methods. Many Banks struggle with this kind of lateral thinking. Things have been done in more or less the same way for so long, that it makes it difficult for industry players to imagine it any other way. But while, the solid and proven infrastructure of banks may limit their ability to think creatively, it provides them with a level of experience that can’t be beat by new players. That experience translates a wealth of financial knowledge, maturity, and critical skills like risk assessment. These things are a significant chunk of what makes banks trusted by the public, who may be more hesitant to entrust their personal information and finances within the hands of a new company with no experience, no customers who can vouch for their trustworthiness, and is unlimited by regulations that protect the consumer.