Banks held their dominant position even when innovation changed the industries over the last two decades. This can be attributed to factors such as highly regulated environments. However banks are presently seeing the emergence of new competitors that threaten to steal their market share and replace them from their leadership in the industry.
These new competitors are highly innovating and adapt to the new technology changes to help the untapped market in the financial industry. They are expanding to emerging countries in Asia, Africa and Latin America, where 60% of the people are unbanked. However this segment own mobile devices. Traditional banking is unable to tap the new market as they are slow to grow beyond their existing market boundaries. FinTech has on the other hand are adaptive to technology and easy to grow and expand in new territories with their small footprint. The most recent example such as M-Pesa in Kenya and ten other African Countries reflects the FinTech success across the emerging countries. M-Pesa has enabled more than 30 million users to transfer money, take out loans and make deposits.
In China and neighboring countries, WeChat a popular multipurpose messaging and payment app have more that billion users performing all kinds of financial transactions using just their mobile phones without the need of a bank account. Another successful non-banking finance giant Ant Financial, subsidiary of Alibaba allows hundreds of users to pay immediately and borrow money within three minutes or make investments in the world’s largest monetary fund. Ant financial is the top 10 largest financial companies in the world by valuation.
FinTechs are startups which are also backed by banks focus on a single financial product or service. They have three major characteristics:
- They focus on a single product or service in contrast to the traditional banks. This helps them to provide superb user experience with lower costs.
- They are customer oriented without the complications of traditional banks. FinTechs focus on solving a user problem than providing an all in one solution to its customer.
- FinTechs are eager to adapt to new and advanced technology available in the marker to have competitive adavantage.
Traditional banks are threatened by new the new entrants FinTechs, may need to cooperate with them. While traditional banks have greater resources, more capital and better knowledge on regulations, they are often slow to adapt to new technology trends and implement better solutions. On the other hand FinTechs can bring new capabilities to banks including agility, innovation and better user experience. This transformation is necessity for the banks which may not be easy for them to survive the financial disruption tsunami which is already here.