Fintech is here to stay, and the offerings of Fintech companies have been able to solve a wide array of problems in the financial sector.
Here are five traditional banking problems that Fintech has been able to solve already.
1. Information gap
It was that very informational gap which led to the subprime loan crisis of 2008, allowing rogue investment banks to sell mortgage-backed securities and then insuring that bad debt with likewise-rogue investment companies in the form of Credit Default Swaps.
The spate of banking regulations which followed, as well as tighter control of data exchange between financial institutions in different countries, was an effort to bridge this informational gap.
Some experts argue that these regulations bring with them other difficulties, preventing banks from carrying out their main functions.
The simplicity of it is that endless regulations — Dodd-Frank alone is several hundred pages long — do not handle the core issue of a system: the traditional banking sector was not built for data exchange between financial institutions, enterprises, and even individuals.
This gap makes it difficult to predict risks.
Fintech embraces information as part of its very definition — utilising information technology to offer a wide range of services that traditional banks simply cannot.
The introduction of AI and Big Data to Fintech has changed the playing field, allowing such revolutionary, low-risk banking services as:
- P2P lending, e.g. PeerBerry, LendingClub
- Micro-lending, e.g. Kiva
- Consumer finance, e.g. Chime
- Supply chain finance and Early Payment solutions, e.g. Taulia
This lack of data-analysis is even more vital in investing. Morning Star is a Fintech company that offers a solution for investors to gain access easily to research material and A-grade professional data in order to assist them in making decisions regarding their investments.
2. Lack of conversational banking and live chat support
Ask ten people on the street if they could describe traditional banking’s support in one word, and we doubt they would use the word “fast”.
Fintech companies use chatbots simply because they wouldn’t be able to compete if their customer service was poor.
As an example, Revolut receives approximately 440,000 new users every month. Fintech companies simply don’t have the luxury of being slow or to put people on hold for ages to talk to a representative.
Chatbots such as Boost.ai alleviate this burden, solving the problem of lack of conversational banking in traditional financial institutions. Live chat support enables users to get assistance for the financial services they use immediately.
3. Uniform banking “solutions” which lack flexibility
That same lack of AI and Big Data in traditional banking results in banks offering the same (or mostly similar) solutions to each other.
As a result of Big Data, AI-capabilities and cutting-edge tech, Fintech companies are able to offer services previously unheard of in the traditional banking sector.
For example, one of Varo Money’s USPs is complete transparency into users’ accounts as well as data-driven insight into their spending habits. Blend uses data to expedite the lending process. TrueAccord uses machine-learning to help companies collect debts.
Numerous Fintech companies have evolved around the investment arena, making investment both easier and more accessible to professional and amateur investors. These Fintech companies include RobinHood, Addepar and Acorns whose services are each entirely unique and completely out of the scope of the uniform, same-ole-same-ole services offered at a local bank.
4. Lack of time and cost-efficiency
Let’s face it, traditional banking is slow. An in-bank application process requires that people leave their jobs and their homes in order to open a simple bank account. Lack of online KYC procedures equally adds time.
Insufficient implementation of simple data solutions in traditional banking means that customers lose time while trying to understand their banking charges.
Because of Fintech, you can now open a bank account in only 90 seconds.
Forward Financing, a US-based company, has developed proprietary technology to assist businesses in getting financing approved the very same day.
Suplari is another company that leverages machine learning to help reduce and manage expenditures and costs, thereby allowing users to save time and money. Using their service, companies can figure out where they are haemorrhaging costs. The platform also allows users to analyse spending trends to discover any inefficiencies in their expenditures.
5. Teams across borders
International spending has not caught up to the world’s current state as a “global village”. Exorbitant FX fees mean that international companies can lose hundreds of thousands a year simply on forex charges.
Additionally, as we move into the “new normal” with companies allowing people to work from home more and more often, the need to have a decentralised system for managing personal and commercial banking has never been more vital.
Fintech offers multiple solutions to this.
Blockchain technology allows Fintech companies to offer fool-proof smart contracts as well as complete transparency in all their transactions.
Companies such as Revolut and TransferWise provide team cards and a dashboard in order to manage expenditures of employees as they use company cards abroad, without ever having to step into a bank or other financial institution.
There is also a plethora of Fintech companies that are competing in the Credit Card Payment arena, allowing companies to accept credit card payments from abroad with reduced fees.
Fintech solves problems, pure and simple
Fintech is the future, and the future simply will not wait for the traditional banking sector to catch up. Luckily, many large organisations and banks are slowly adopting the mindset and embracing fintech and AI. It is great to see big banks replace their processes and technologies with cutting-edge innovation, however, they still have a long way to go in keeping pace with the newly sprouting startups that can ‘offer it all’.