WHAT IS FINTECH
Although London is widely recognized as a global leader in FinTech innovation, professionals within this industry will probably tell you the most commonly asked question they receive is ‘what is FinTech’ ?
The definition of FinTech is as follows: “Financial technology (FinTech or fintech) is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services”[i].
What are the distinctions between FinTech and Financial Innovations ?
The distinctions between FinTech and financial innovation can mainly be appreciated through recent changes that are evident in the differing influences to consumer behaviours.
These changes can specifically be acknowledged through disruptive and incrementally innovative implementations within financial services, and, consequently the flexible adoptions of new technological service offerings.
These have risen in recent years through Non-Banking Financial Companies (NBFCs), that do not retain banking licenses and only offer financial services such as credit, loans and savings.
The rise of NBFCs clearly illustrates these differences between FinTech and financial innovation and have become important to the FinTech ecosystem especially Peer-to-Peer (P2Ps), inspiring new businesses and servicing solutions in funding accessibilities and inefficiencies for consumers and SMEs that require funding but are unable to or absent from traditional financial services. This has caused disintermediation within traditional financial services, whilst enhancing consumers financial capabilities.
As it stands, a major obstacle within the traditional financial services industry, and major institutions down to smaller companies are legacy infrastructures, and inefficiently outdated procedures that do not offer more innovative services.
Financial institutions seek innovations to improve their internal structure, reduce operational costs and increase overall efficiency. Huy NGUYEN TRIEU, Co-Founder of the CFTE and CEO of The Disruptive Group, states that financial innovation developed over time from ATM cash machines to financial instruments and market securities[ii]. PWC highlights that executives are working through IT departments “to improve efficiency and facilitate game-changing innovation, while…lowering costs and continuing to support legacy systems”[iii].
This has led to a lack of scalability and flexibility towards the adoption of new technologies and services coupled with the ridiculous costs of banks re-structuring at all levels.
Alternatively, FinTech innovations have led to efficiently better services, creating greater financial inclusion in implementing pre-existing, or creating and implementing, new technology and technological infrastructures. PWC states FinTech start-ups are “encroaching upon established markets, leading with customer friendly solutions developed from the ground up and unencumbered by legacy systems”[iii], for example, digital challenger banks such as Monzo and Atom Bank.
Perceptions of FinTech in the UK
A consumer survey carried out by The Telegraph in 2017 found that “London-based respondents are more aware of FinTech (27% vs 10%)”in comparison to the rest of the UK. Whilst ironically 52% of those surveyed in London have unknowgly been using or recently used a FinTech company vs 26% for the rest of the UK”.
When asked what do consumers really think of FinTech, only 12% of those surveyed in total have heard of FinTech, and 7 in 10 don’t know any of the main Fin-tech companies.
Only 10% of those surveyed in total are currently using FinTech companies[iv].
Despite these figures most trends suggest that consumers demand more modernisation for technologically innovative solutions.
With that in mind a key aspect to consider and certainly that needs to be addressed is consumer sentiment and behavioural habits across all age groups.
For example, the U.K has an aging population, and all the customary habits of banking that accompanies certain consumer behaviour paradigms, especially older generational patterns where the majority of wealth is held and whom may be reluctant to change along with being the most subject to security risks. The geographical distinctions between London and the rest of the U.K, present further complexities that need to be understood better in order to further the U.Ks FinTech ecosystem.
Additionally, addressing the interdependence of these existing users that can not adjustment to FinTech, whether it be technical understanding, fear of modification, costs incurred and reliability.
These factors need to be immediately addressed in order to increase the UKs exposure and familiarity towards FinTech.
The need for internal and external digital transformations and greater education across all levels within all organisations are also essentially needed.
Creating awareness in better educating customers in services is paramount in aiding consumers not just to reduce western legacy challenges, but also in continuing to grow and improve the inevitable enhancements of future usage, for both national and global inter-connectivity. In essence, this needs to come from incentives to promote the reliability of these enhancements so they are viewed as innovations, rather than as disturbing disruptions.
Chris Skinner a top Fintech influencer and bestselling author, describes how the Asian and Southern hemispheres do not have these problems, and have effectively managed to leapfrog Western banking with technological infrastructures and services. Asia does indeed have a significant advantage here in the mainstream usage of Fintech, Artificial Intelligence, Machine Learning and more recently Blockchain Technologies[v].
In my opinion, Western Banks could still play a key part in the implementation of FinTech services should they attempt to adjust more internally within 2018. They could assure current and future generations of security, trust and benefits within these services should they adapt effectively through creative applications and adoptions.
It will be interesting to see how FinTechs, established Banks and financial institutions will respond and whether significant advancements will be made in 2018 especially with the introduction of PSD2 and its impact on API transferences.
If Banks do not adjust then FinTech companies which are already more agile will continue to increase service offerings for consumers and this could lead to radical disintermediation.
[ii] Huy NGUYEN TRIEU (2017) Module 2 Unit 2 Transcipt [online] Available at: https://oxford.onlinecampus.getsmarter.com/pluginfile.php/488/mod_video/content/10/OXF%20FIN%20M2U2%20Video%20Transcript.pdf [Accessed 26 Oct. 2017]
[iii] PWC (2017) Financial Services Technology 2020 and Beyond: Embracing disruption [online] Pg 6 Available at: https://www.pwc.com/gx/en/financial-services/assets/pdf/technology2020-and-beyond.pdf [Accessed 27 Oct. 2017].
[iv] The Telegraph. (2017). The Telegraph Future of Fintech 2017 consumer survey. [online] Available at: http://www.telegraph.co.uk/business/fintech/telegraph-fintech-2017-consumer-survey/[Accessed 20 Oct. 2017].
[v] Skinner, C. 2017. A three-stream financial world: which one to watch? Chris Skinner’s blog. Available: https://thefinanser.com/2017/07/three-stream-financial-world-one-watch.html/ [2017, August 28].