How are traditional banks responding as governments clear the way for FinTech offerings?
As the Coronavirus confines the majority of the world’s population to their homes, digital solutions and offerings have stepped into the spotlight, bringing the battle between FinTech and traditional entities to centre stage.
As we come to terms with the ‘new normal’ created by Covid-19, the financial technology sector has been singled out as a key area of growth, encouraged by the need for business to carry on as well as possible, thus generating a driver for rapid industry advancement.
According to the Dubai Future Foundation (DFF) entitled Life After COVID-19: Financial Technologies, quoting deVerem data, FinTech apps witnessed a 72% spike in usage in the final week of March, and a 20% increase in weekly downloads between Q4 2019 and the close of Q1 2020.
Similarly, digital currencies reportedly show similar promise. The Bank of England stated in March 2020 that digital currencies would “theoretically widen the policy options available” by allowing central banks to implement negative interest rates, therefore leading to greater bank confidence in lending, without encouraging cash-hoarding.
The potential for mainstream Big Tech companies to enter the FinTech industry also poses a threat to traditional banking institutions, capitalising on their existing expansive array of user data to draw insights and curtate financial solutions to their userbases’ problems.
An article by Vietnam.net draws attention to the example of Kakao Bank, a South Korean internet-only bank established in January 2016, which offers users almost instantaneous verification, overcoming traditional customer pain points. Kakao Bank is affiliated with Shinhan Bank, KB Kookmin, Samsung, and Citibank, according to the article, and opened 20,000 - 30,000 accounts per month, with 12 million users by the end of March 2020.
Revolut, similarly a digital banking success story, boast 10 million customers across 36 countries; the app recently launched a ‘junior’ offering aimed at educating 7 to 17-year-olds on money management.
The DFF report encourages financial institutions to adopt digital strategies: “Given that people cannot physically visit banks due to the precautionary measures taken to tackle Covid-19, easing their access to digital services will be critical. Banks and other financial intermediaries should be incentivised to augment their digital platforms and reduce the costs associated with online banking for consumers.”
“Such costs should be streamlined, or entirely removed where possible, to allow the advantages of financial technology – increased speed, reduced cost – to start to translate into market-wide efficiencies and ease financial stress.”
Accenture’s Banking Lead, Alan McIntyre, is bullish on the opportunity presented to traditional banking institutions by the Coronavirus: “The pandemic forced acceleration of plans that were already in place for many banks,” McIntyre said in an article published by The Financial Brand.
According to McIntyre, the lockdown could almost act as a “time machine” for traditional financial institutions, giving them the opportunity to catch up the newly-emerging digital offerings, capitalising on the more lenient approach being adopted by regulators during these challenging times, operating under the impression that, once the banks have implemented digital transformation strategies, regulators should say: “you’ve managed to make good progress, so we’re not going to force you to go back.”
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