Fintech revolution: the unintended long term effect
Financial Technology, Fintech for short, is the application of technology and digitization in financial services delivery.
Fintech is rapidly changing the face of banking across the world – reducing time taken to access financial services, making it possible for people to bank comfortably anywhere with ease.
Most importantly, the Financial Technology revolution is what is driving the efforts to make financial services inclusive for all people across social and economic spheres.
According to the World Bank’s 2018 Global Financial Index Report, digital technology, and especially widespread access to mobile phones, are driving access to and use of financial services, particularly in sub-Sahara Africa.
In an article written by the Managing Director of the International Monetary Fund (IMF), Christine Lagarde, in the IMF’s development magazine under the title, “A Regulatory Approach to Fintech: We must guard against emerging risk without stifling innovation”, she stated that in Kenya and China, mobile payments systems have brought millions of previously “unbanked” people into the financial system. In Latvia, Brazil, and elsewhere peer-to-peer lending has opened up a new source of credit for small businesses that have trouble borrowing from a bank.
In Ghana, access to mobile phones has increased the number of persons with mobile money accounts from about one million in 2013 to about 11 million active mobile money users in 2017.
However, with advances in technology, the agents of the service providers, the telecoms companies, may be rendered redundant and kicked out of business in the long term. The market leader in Ghana’s mobile money space, MTN, announced earlier this it was going to introduce, within, the mobile money space, machines, secured self-service kiosks, that could take deposits and dispense cash for its mobile money business.
CGAP (the Consultative Group to Assist the Poor), a global partnership of more than 30 leading organizations that seek to advance financial inclusion, estimates that Ghana has about 200,000 registered mobile agents with 151,000 being active. If MTN succeeds with this move, it will be replicated by the other industry players and 151,000 people will be kicked out of business and rendered unemployed.
Fintech companies are gradually shifting focus from merely creating payment mediums or systems. Emerging Fintech companies, are venturing into delivering mainstream banking services (lending, trading, payments and wealth management) offered by the “brick and mortar” banks.
One of such Fintech companies is the United Kingdom’s digital and online bank, Monzo. Monzo is one of the numerous European digital financial services providers that recently gained banking lincences in Europe, including Starling and Atom in the UK, Klarna in Sweden and N26 in Germany.
The company’s CEO, Tom Blomfield, told the Financial Times that, the company has more than 870,000 current account holders and charges no annual fees. Mr. Blomfield added that, the company aims to make money by lending out more of its deposits.
In Africa, Nigerian mobile App, Paylater is revolutionizing credit acquisition in Nigeria by issuing instant loans up to one million naira to customers without seeing or speaking to them. The company says no collateral or paper work is needed to obtain loans using the App.
According to the company, the App has over one million downloads on Playstore and has provided credit to the tune of $17 million so far in 2018 backed by strong investment features.
Fintech is growing rapidly on disenchantment with traditional banks and a growing desire, particularly among people to manage their finances on their mobile devices than in a branch or talking to somebody at a call center.
Admittedly, in the immediate to medium term, despite the strides made by Fintech companies, the traditional banks will maintain leadership in the banking industry largely due to regulatory barriers to entry and natural inertia of customers to switch, together with cyber insecurity.
But as Fintech companies continue to lead innovation in the banking industry by sharpening their focus on customer experience, Deloitte, one of the world’s leading accounting firms has suggested in its 2018 Banking Industry Outlook that, for the traditional banking industry to be less vulnerable to the threats posed by these Fintech companies, banks need to replicate what the Fintech companies are doing and respond with equally innovative solutions.
More automation and digitization, which are at the heart of innovative solutons, are the only meaningful means the traditional banks can weather the storm and stay competitive.
More automation and digitization in the long term, will completely obliterate brick and mortar bank branches as all activities of the banks will concentrated at one center with very little human element.
What then becomes of those who previously occupied the brick and mortar banks? Your guess is as good as mine. Unemployed. They’ll be unemployed as bankers as more unbanked people are banked through the power of Financial Technology.
By Bismark Elorm Addo
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