How Banks Can Benefit From Financial Technology
FinTech, a portmanteau for financial technology, has been the hip new buzzword around the startup scene recently as more entrepreneurs look for ways to use technology to improve the financial industry. Consumers have typically faced many challenges when it comes to obtaining financial services. These can include difficulties in obtaining loans, inefficiencies in peer-to-peer transactions or even conflict of interest while obtaining financial advice.
This is exactly where FinTech comes into play as entrepreneurs find ways to enhance the consumer experience in the notoriously challenging finance industry. Some of the interesting startups include Lenddo, an alternative credit scoring service, which capitalises on personal information obtained from social media, Transferwise, an international money transfer service, and Ripple, a new payment network.
Why banks partner with FinTech
Traditional finance companies like banks used to worry that upcoming technology might disrupt their business in the future. This is why many banks have designated a technology team to improve their in-house operations and to increase efficiency.
However, in-house technology teams are usually not as streamlined as start-ups. Many of these startups are devoted specifically to fixing a certain problem and are able to focus their energy and resources accordingly. This gives the startups an advantage over their traditional counterparts.
On the other hand, traditional financial service companies have the reach and the database, which the startups do not. Therefore, rather than viewing these new start-ups as competitors, banks have begun to partner and fund these FinTech companies in a bid to bolster their services.
The new technologies in the hands of the banks can reach a wider audience and improve operating efficiency and customer experience. The start-ups benefit as well, as they can use the reach of banks and traditional financial services players to expand their market share.
Incubators and funding
Banks have begun using incubator programs to mentor and help young FinTech companies reach their goal. The partnership works both ways, as the startups are able to leverage on the expertise of the banks, which may also provide office space and training. Banks, on the other hand, are able to leverage the new technologies developed to further expand their financial services capabilities.
Even the three major banks in Singapore have gotten in on the act with startup incubators and accelerator programs. Some noteworthy local startups include Moolahsense, a crowdfunding platform, Moneysmart, a personal finance management tool and Mesitis Capital, an online wealth management platform.
The Foolish bottom line
A decade ago, banks and FinTech companies were in direct competition and they were willing to go toe-to-toe in the market. However, as new developments arise, and both parties realise the potential benefits of partnership, things changed. Traditional players have begun to see FinTech start-ups more of an asset than as competition. This can only be good for consumers as new technologies emerge to improve the overall consumer experience across the industry.
This is probably just the beginning of FinTech and hopefully, in the near future, we can see greater developments and partnerships arise that can benefit companies and consumers alike.