Although it’s been around for more than 200 years, the State Bank of India is becoming increasingly nervous about its place in the world. According to the bank, emerging FinTech solutions like the payments entity Itzcash and the pioneering credit service Paytm are posing an increasing threat to traditional financial entities like banks. The bank believes that, despite having more than 24,000 branches and 420 million customers, it is still not immune to the threat posed by disruptive new technologies. In an interview, chairman of the bank, Rajnish Kumar discussed his concerns about effects that trailblazing technologies have on more traditional financial institutions. In light of Revolut, a UK-based FinTech startup, becoming one of the first app-based international banks in the world, Kumar’s concerns may be valid.
Not Only Indian Banks are Becoming Concerned
PwC in Malaysia conducted a survey, in which it was revealed that Indian banks are not the only traditional financial institutions concerned with the impact FinTech will have on the traditional financial industry in the future. According to the survey, over 80% of Malaysian financial institutions see FinTech developments as a threat. But, while traditional financial institutions, like banks, are nervous about FinTech, investors are becoming more and more positive about the potential it holds for wealth generation. Millions of US dollars are going into funding FinTech solutions across Southeast Asia. From 2016, over 10% of total VC funding in the region was geared towards FinTech.
Transforming Threat Into Opportunity
If banks move fast enough with adopting FinTech innovations, they will have a distinct advantage over their competitors. While app-based banking may seem intimidating, there are still massive limitations to it. Revolut may have the vision to become a top international ‘bank’ but they still only function in retail banking and customers are only allowed to deposit limited amounts. Where the real threat lies, is with massive international companies like Alibaba and their FinTech arm Alipay. Bolstered with enormous financial resources, companies like this are becoming increasingly entrenched in FinTech innovations
The Rest of The World May be Ahead of India
As banks in India began to express concerns about FinTech and started keeping a close watch on the industry, the rest of the world became more inclined to accept the new shift the finance industry is undergoing with many major industry players taking changes to heart and embracing FinTech. It was announced that the Fintech startup WePay was acquired by JP Morgan, a top international banking giant. According to JP Morgan, the acquisition was made with the hope that it would help implement a faster payment system for the bank’s small business customers of which there are around 4 million entities. At around the same time, IBM and its payment system KlickEX partnered with Stellar in a bid to lower cross-border transaction costs while drastically increasing transaction speeds.
In 2017, a FinTech strategy panel was formed in Ontario, Canada. The goal was to create a strong eco-system for over 140 Canadian FinTech companies so that they may compete with FinTech centers in the United States in Silicon Valley, New York and Chicago. By that time London had already become an established FinTech hub with over £800 million already invested into the industry. Considering that Brexit continues to loom over Britain, and could potentially jeopardize the system, these are record numbers.
In the meantime, banks that are part of the Gulf Cooperation Council (GCC) may be taxed with large cuts in profit because of FinTech. S&P analysts believe that FinTech may have a massive negative impact on GCC banks, particularly on their foreign currency exchange and money transfer businesses. This projection is pushing banks to reconsider their operations and to incorporate digitized business processes as they reduce branch networks. The 2017 Ernst & Young GCC FinTech Play report, over 85% of GCC banks that took part in the survey believe that as much as 15% of their business may be lost to FinTech, unless they take preventative measures.
Massive developments are happening in FinTech. This is taking the world by storm and is causing serious global disruption in the finance industry. This is causing banks and other more traditional financial institutions to feel vulnerable and unsure of their future space in global markets. Based on research, these institutions will eventually be forced to make a choice between two viable options. They will have to decide whether they want to go into partnership with FinTech companies to achieve a competitive advantage over their contenders. The only other option is to bring FinTech in-house with a goal of making service delivery faster and more efficient. Either way, they will have to embrace FinTech as part of the evolving future of finance. Unless they are willing to lose a substantial chunk of business to those embracing FinTech, ignoring FinTech is not an option.