Fintech Start-Ups are a Real Challenge to Banks
In a recent report from Oracle and Finextra Research, “Key Drivers, Emerging Trends, and Development in Corporate Banking,” they discussed how Fintech start-ups are increasingly becoming a threat to the status quo that traditional banks have enjoyed for years. One of its key findings was how Artificial Intelligence (AI) and Blockchain technology are able to securely store, interrogate, capture, and validate data, while removing the need for multiple records so improving the efficiency of managing data. As many of the banks’ customers are becoming more global, and as economies are becoming more digital, banks are being asked to provide faster services- whether that be for cash or credit management, while improving the efficiency of money transfers at ever lower transaction costs.
One of the key factors is for a bank to maintain its customers trust and confidence, as banks have traditionally been a place to store cash, borrow money from and carry out transactions. However, in a survey carried out in the USA by Gallop, it has seen since 1979 to 2018, that confidence in banks has fallen from 60% to 30%. Banks’ public image and trust, since the financial crisis in 2008, has been severely challenged as summarised by a quote from The American Banker magazine:
“A lack of widespread trust raises questions about banks’ relevance in the digital age and leaves them open to further political attack.”
In a World Economic Forum from back in 2015 it stated that it believed:
“Blockchain technology, replaces the need for third-party institutions to provide trust for financial, contract and voting activities.”
Traditional banks, with their legacy IT systems, are struggling to adapt. FinTech firms that do not have different hard and software systems to maintain and integrate, are able to embrace technologies like Blockchain and AI and offer solutions. This has led to traditional banks moving away from building more in-house solutions and to turning to the more nimbler Fintech firms.
Examples of FinTech firms improving banking:
Know Your Client: If we look at Know Your Client (KYC) costs, a firm called Consult Hyperion states it can cost a bank between £10 to £100 per client to carry out these checks which, depending on the riskiness of the client, may need to be done every year. While carrying out these checks, vast quantities of personal data needs to be collected and then securely stored which, in itself, creates its own set of challenges. Alternatively KYC checks can be carried out by firms like Blockpass, which can offer KYC services for less than £2 per person. Plus, thanks to technology Blockpass does not store the personal data therefore does not have the onerous burden and complexities around storing of this information.
Fraud Detection: In the area of fraud detection, Teradata, is an AI firm selling fraud detection solutions to banks. It claims to have already helped Danske Bank reduce the bank’s false positives by 60%. The firm expects that figure to reach 80% as its machine-learning model continues to learn. At the same time, Teradata has increased detection of real fraud by 50%.
This article was written by Jonny Fry, one of Leaseum Partners senior advisors in asset management and blockchain. It was originally published in his Digital Bytes newsletter.
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