FinTech and Banks: Collaboration or Competition?

With the rapid growth and advancement of technology, it has led to the advent of a new digital era. Technology is becoming a mainstay, increasing efficiency, reducing need for labour and replacing workers for the manual jobs. Technology is also not restricted in any vertical, but can be found in marketing, health, logistics and — of course — the financial sector.

Financial Technology, or FinTech is very common in the world today with related startups sprouting everywhere and anywhere. However, what exactly is FinTech?

Definition and Purpose

FinTech is a technology that seeks to improve and automate the delivery of the use of financial services. ​​​Fundamentally, FinTech is utilised to help the stakeholders — companies, business owners and consumers — better manage financial operations, processes, and lives using software and algorithms found in a computer.

FinTech has been able to gain ground and further traction due to the increase in mobility. The high penetration rate of smartphones has made interaction between consumers and financial institution much more convenient and efficient. Every digital transaction, be it online shopping, foreign currency exchange, stock investments, or money transfers, is possible at our fingertips thanks to FinTech.

Different Types

FinTech is very broad and can be further segregated into a few categories:

1. Lending
People do not need to go to banks or credit unions to borrow money anymore as FinTech companies can now be making loans directly to consumers.

2. Payments
People can send money to each other without the need to turn to banks.

3. International Money transfers
FinTech companies are offering faster international money transfers with lower costs.

4. Personal Finance
Consumers can get personal finance advice anywhere. There are even applications that can help create budgets and saving plans.

5. Equity Financing
FinTech companies are making it easier for businesses to raise money by simplifying the process or providing alternatives for funding.

6. Consumer Banking
FinTech companies are reaching out to the unbanked consumers. Consumers that are unable to get approved for credit cards can get prepaid cards from these companies.

7. Insurance
FinTech companies are focused on the distribution of insurances, reaching out to customers that are underserved by insurance.

Relationships between FinTech and Banks

With the rapid penetration of FinTech, many have proclaimed that banks are now facing problems in finding ways to compete with FinTech.

However, that may not be the case. During the Innovfest Unbound 2019, key figures from top banks discussed how FinTech and banks can coexist together. In this panel discussion, it was a consensus that banks should not try to drive FinTech out of the business landscape, but rather find out what aspects the banks should develop internally and what aspects should the banks partner with FinTech.

One aspect that banks can partner with FinTech would be in engagement where “(FinTech) software that allows banks to engage customers in a superior way” as shared by Mr Dennis Khoo, MD, Regional Head TMRW Digital Group, Group Strategy & Transformation — UOB. “Build the traditional structure, engagement is the FinTech in the world.” As stated by, it is notable that banks have been working with FinTech for years. Jennifer Doherty, Head of Innovation APAC — HSBC, aptly puts it, “In the past, (services came) in the name of vendors. They provided solutions for banks which has been incorporated.” Banks have always been outsourcing work to other companies and the services coming to the public view has not changed it.

However, the panellists think that FinTech companies that focus on lending money will not be able to last long in the current environment. They feel that people do not understand the true essence of what makes a bank. “(Banks) are also risk managers as banking is a business of trust, governance and strong regulations to ensure that the banking system is stable. FinTech companies do not need to bear this kind of risk and (determine) whether there are prudent policies in lending,” as emphasised by Dennis.

“The main thing is to keep solving customers’ challenges as the centre of your service,” said Jessica Doherty. Ultimately, the panellists all agreed that the main goal should be the same to serve the customers better and to solve their problems. Without customers, there is no need for FinTech or banks.

FinTech Incorporated into Banking

To further emphasise how FinTech and banks can work hand in hand, here are some ways FinTech has been incorporated into the current banking systems:

1. Chatbots
With the advancement of AI and machine learning, chatbots has become a popular tool for banks to streamline the customer facing interactions such as answering customers’ queries or helping to direct customers to the relevant departments. For example, Erica, the Bank of America’s chatbot, can even provide investment advice to customers. UBS is also using robots to scan customer emails for trading instructions and executed autonomously reducing the delay time from 45 minutes to 2 minutes. The use of these chatbots not only improves customer satisfaction and reduces costs but also frees officers in customer service centres to focus on value addition.

2. Fraud Detection
Identifying fraudulent transactions is the objective of the anti-money laundering departments. Instead of relying on software to generate alerts of possible fraudulent transactions and human investigators to evaluate, adopting data aggregation platforms, machine learning-driven statistical modelling and process automation can transform the operations by infusing new efficiencies. For example, machine learning algorithms can leverage historical records to determine patterns and predict the possibility of fraud and attacks before they occur, reducing manual effort by nearly 50%.

3. Omni-channel Banking
With banks shifting to digital channels, bank branches have started to lose their importance. Studies show that the adoption of omni-channel banking is driving several banks to reduce the number and size of their branch offices. Banks can now make use of digital channels to reach out to a wider audience, which includes the unbanked population.

4. Biometrics Security
One of the new technologies that have been proven radical is biometrics scanning. This provides an extra layer of authentication for transactions that has greater security. Biometrics promotes usability by enabling quick authentication, reducing the hassle of remembering multiple passwords. Several banks are investing in biometrics-based authentication solutions that use the forward-facing camera to scan one’s iris or the in-built thumbprint scanners in smartphones to strengthen security.

All in all, FinTech can be an inevitable pillar in our lives for at least the next generations. Banks can either choose to embrace it and innovate together or lose the competitive edge over the other banks.

About BlackStorm Consulting

BlackStorm Consulting (http://blackstormco.asia/) is a boutique growth consultancy firm that specialises in corporate strategy, profit management and investment management. We mainly serve clients in four sectors: FinTech, Gaming, Technology, Media and Telecommunications (TMT), and manufacturing.

Our clients and connections are internationally present and range from small and medium sized businesses, MNCs, to government agencies.