By: Yinka Adedeji, Head of Consumer & Digital Banking at UBA Plc.
Banking
is traditionally thought of as an mediator between those that have excess
money and those that need money. Banks are still stuck with the traditional
mind-set by continuously re-inventing around liability, credits, treasury and
correspondence products.
is traditionally thought of as an mediator between those that have excess
money and those that need money. Banks are still stuck with the traditional
mind-set by continuously re-inventing around liability, credits, treasury and
correspondence products.
Managing
these products requires a lot of manpower. Manpower required to assess small
value requests is the same as what is required to assess large value requests.
For example, the effort to process a mortgage of Euro 25,000 is the same effort
to process a 250,000 Euro mortgage. At the same interest rate, the larger
ticket transaction will yield higher interest income.
Therefore, traditional banks usually focus on those large ticket
opportunities.
these products requires a lot of manpower. Manpower required to assess small
value requests is the same as what is required to assess large value requests.
For example, the effort to process a mortgage of Euro 25,000 is the same effort
to process a 250,000 Euro mortgage. At the same interest rate, the larger
ticket transaction will yield higher interest income.
Therefore, traditional banks usually focus on those large ticket
opportunities.
Technology entrepreneurs have identified these opportunities in low
value ticket but high velocity transactions and have come up with fantastic
solutions. These financial technology entrepreneurs are now emerging so fast
with very simple and easy to use solutions for customers that need financial
services that traditional banks do not place a lot of value on.
value ticket but high velocity transactions and have come up with fantastic
solutions. These financial technology entrepreneurs are now emerging so fast
with very simple and easy to use solutions for customers that need financial
services that traditional banks do not place a lot of value on.
The threat posed by UBER to the transportation industry is
child’s play in comparison to what FinTechs can do to
traditional banks.
child’s play in comparison to what FinTechs can do to
traditional banks.
The advantages of FinTechs over traditional banks are agility, idea
generation at the back of envelops, decision making in coffee shops instead of
fancy boardrooms and lengthy unproductive meetings, flexibility to continuous
change, openness to use shared services like clouds, very low cost and low
pricing, no legacy systems to box their thinking, no fear of failure and,
freedom from claws of regulators.
generation at the back of envelops, decision making in coffee shops instead of
fancy boardrooms and lengthy unproductive meetings, flexibility to continuous
change, openness to use shared services like clouds, very low cost and low
pricing, no legacy systems to box their thinking, no fear of failure and,
freedom from claws of regulators.
Fintechs are dominated by students, new graduates and experienced
workers who are frustrated with the products and processes of traditional
banks. However, some giant social media agencies such as Facebook, Google,
Yahoo, WhatsApp, etc. are now playing in the payment space of traditional
banks. They are not only driving banking service penetration but also bridging
the gap between banks and Fintechs to
provide financial services. Tech giants are gaining the trust of people, and,
in fact, have more information about the customers and their friends and family
than what the banks have. Thus, the banks no longer monopolize peoples’
trust.
workers who are frustrated with the products and processes of traditional
banks. However, some giant social media agencies such as Facebook, Google,
Yahoo, WhatsApp, etc. are now playing in the payment space of traditional
banks. They are not only driving banking service penetration but also bridging
the gap between banks and Fintechs to
provide financial services. Tech giants are gaining the trust of people, and,
in fact, have more information about the customers and their friends and family
than what the banks have. Thus, the banks no longer monopolize peoples’
trust.
However, traditional banks also have a unique advantage in the sense
that people trust that their money is safe.
that people trust that their money is safe.
The advantages listed for FinTechs are the disadvantages of traditional
banks and the advantages of traditional banks are the disadvantages of the
FinTechs.
banks and the advantages of traditional banks are the disadvantages of the
FinTechs.
Central switches have improved significantly as FinTechs can now readily
connect to banks. The switches that rely on account numbers will definitely
require the banks to authenticate all transactions and will require
collaboration of the banks. However, those switches that accept cards have
opened the capability of Fintechs to approval debit/payment transactions from
accounts that are in banks.
connect to banks. The switches that rely on account numbers will definitely
require the banks to authenticate all transactions and will require
collaboration of the banks. However, those switches that accept cards have
opened the capability of Fintechs to approval debit/payment transactions from
accounts that are in banks.
FinTechs are introducing new and cool products such as account deposits,
payments and transfers, recurring payment services, bill payments, local and
international remittances, nano- and micro- loans, discounts, loyalty services,
etc.
payments and transfers, recurring payment services, bill payments, local and
international remittances, nano- and micro- loans, discounts, loyalty services,
etc.
Traditional banks are trying to respond to the threat posed by these
FinTechs barbarians at the gate. However, traditional banks cannot respond with
better solutions fast enough.
FinTechs barbarians at the gate. However, traditional banks cannot respond with
better solutions fast enough.
The banks have come to recognize that they have to collaborate with
Fintechs in a Win Win style.
Fintechs in a Win Win style.
Traditional banks will enable and provide access to already banked
customers current and historical data and Fintechs can access bank data at a
cost.
customers current and historical data and Fintechs can access bank data at a
cost.
When the dust settles, traditional banks will enable, acquire or invest
in some Fintechs. Traditional banks will need to improve to act like Fintechs
or die.
in some Fintechs. Traditional banks will need to improve to act like Fintechs
or die.
