Fintech is taking off. According to a report by Statista, the sector is expected to be worth around $20 billion in the US alone in 20171. Elsewhere, a report published by Accenture shows 1,100 Fintech deals were completed in 2015, up from 400 in 20102.
Fintech is unquestionably disrupting the financial industry. But how should the incumbents respond? Should they be intimidated by the threat of losing business? Or should they see it as an opportunity for collaboration and a chance to improve their offering for the end customer?
Both the Fintech sector and the traditional financial industry face challenges. In the case of Fintech, startups tend to struggle to secure the resources required to meet strict regulations and anti- money laundering rules and to scale up their offering so they can cope with larger audiences. To make things worse, if they’re bringing a new technology to market, financial regulators get very nervous. Just look at bitcoin for a perfect example.
Customer confidence is another major challenge for the Fintech sector. Consumers are naturally careful about where they put their money, especially after the 2008 financial crisis. So while they probably like the idea of an app that makes managing their finances easier, they may be reluctant to trust their hard earned money to a relatively unknown startup. Many consumers are used to walking into a brick and mortar branch of their bank, so the thought of completing transactions purely online might seem odd, particularly to older generations.
On the other hand, legacy IT systems limit the ability of financial institutions to innovate and meet the evolving needs of their customers. After all, younger generations complete a range of transactions on a mobile device these days, such as ordering a taxi or booking a hotel room, so they expect to be able to manage their finances in a similar fashion. But financial institutions have three advantages that Fintechs lack- resources, network and well-established trust among consumers.
Here at Xpress Money, we believe the scene is set for collaboration. By combining their strengths, financial institutions and Fintech terms can collectively overcome their weaknesses.
To put this in perspective, let’s look at a partnership we agreed with one of the biggest companies in the money transfer sector. We joined forces with WorldRemit- known as the ‘WhatsApp’ of money- to open up new transfer channels in Africa, Asia, the Middle East and other emerging markets. Expats in the UK and Europe can send money abroad via a service they know and trust, while the receiver can collect cash from our extensive agent network.
So here’s our call to action: traditional financial institutions and Fintech firms should embrace each other. That way, everyone benefits- customers enjoy an enhanced user experience, financial institutions improve their bottom line, and Fintech firms get to scale up.
Written by Sudhesh Giriyan, COO, Xpress Money