For centuries one institution has appeared to be unassailable, banks. Banks have also been the target of significant criticism, which likely started shortly after the first one opened for business.
The last decade and a half have been particularly hard on banks, both in financial returns and in consumer confidence. Blame for the US financial crisis was laid at the bank’s doorstep. The ensuing global financial crisis that severely affected the UK and Europe exposed many of the less than responsible tactics of international banks. As if a global financial crisis was not enough, stories of bankers making billion pound trading errors, coupled with revelations that the salaries of bank executives were often in the range further tarnished their image.
The banks needed to offset their financial losses and boost their bottom line. In order to do this they raised fees to customers, cut services, and closed thousands of bank branches and furloughed tens of thousands of employees.
While they were trying to recover from the largely self-inflicted wounds new developments emerged that posed a significant threat to the banks, the digital age and FinTechs.
FinTechs, financial service companies which operate in the digital world, have addressed the weaknesses and customer dissatisfaction of the tradition brick and mortar banks, head on.
FinTechs have many factors working in their favour.
One of the biggest is obviously existing in an ever increasing connected world and the mobile revolution. In many countries the number of mobile devices in use far exceeds the population. App development is far faster in terms of development, deployment, and updating, especially compared to the massive infrastructure overhauls that traditional banks have been forced to make to establish a digital presence.
Changes in society as well have especially helped the FinTechs, especially with millennials. Millennials are far less likely than previous generations to have brand loyalty and allegiance to traditional established banks and financial institutions. They expect, and in many cases demand, that the companies they do business with are online and available 24/7.
This demand for online access is illustrated by a study conducted by the conducted which showed that UK customers transferred almost £3 billion each week and logged onto banking apps more than 11 million times a day.
FinTechs have also succeeded by attacking the long existing vulnerabilities of the banking industry; fees and customer service.
In a recent interview CEO, Daumantas Dvilinskas, says that convenience is the key to success of banking and financial institutions in the future. “People want and expect instant results and Banks are merely reacting to this new behaviour. In the last week alone we have seen an increase of 10 per cent in user registrations, with $17 million transferred last month, meaning there is very strong demand for online and mobile financial transaction systems.”
The prospects of FinTechs like TransferGo completely replacing the traditional bank are frankly unlikely. However they are forcing traditional banks to make a number of changes in the way they conduct business in virtually every sector of their businesses. Innovation is a key tradition for FinTechs. This aspect has placed traditional banks in the unenviable position of being forced to play catch-up.
By the same token, traditional banks are not going to stop the growth and innovation of the FinTechs.
The most likely long-term event is collaboration between traditional banks and FinTechs, a strategy that the Bank of England is currently testing.
The good news is that as a consumer the odds are strongly in your favour that you will experience increased customer service, lower fees, unparalleled convenience, and the ability to find financial institutions that offer specific services tailored to fit your needs.