Fintech is having an increasingly huge impact on the economy, as research from the National Bureau of Economic Research suggests. The fintech space is outshining traditional banks, breaking barriers, and carving a clear path in today’s society.
We look at its rising impact more closely, backed by some interesting finds and recent events.
Ditching Traditional Banks
Online companies like Facebook, Whatsapp, and Amazon are helping create high expectations among consumers as we access more of our life online. Consumers’ experiences on these platforms are instant and real-time, and people seem to be growing similar expectations from their banks. We are starting to see a greater focus on real-time payments as well as increasing demand for the ability to make them 24/7.
With online interactions becoming the new norm, customers want digital-first services they can access at the touch of their fingertips, as well as access to all their balances in one environment rather than separate places (e.g., cryptocurrency). Non-traditional banks can react more quickly, adapt very easily due to their innovative nature, and, most importantly, everything can be done with a tap on a screen.
What Is the Future of Traditional Banks?
Traditional banks are still expected to play an important role in the economy. But for these institutions to adapt to new technologies and current customer expectations will be a huge undertaking requiring changes and updates across the board. This shift could bring real technical challenges and migration nightmares on the tech side. For many, it will prove too difficult, posing a huge risk to their market share.
On a more positive note, those that manage to speedily adapt will be able to compete with fintech brands, and perhaps with the additional advantage of customer loyalty, which they have been building for decades. Another promising factor for banks is that some customers still like the option of visiting a physical environment for their banking needs.
“Future-Proofing” the US Dollar
Earlier this year, the Digital Dollar Foundation and Accenture published a whitepaper laying out proposals for the development of a Central Bank Digital Currency (CBDC) in the US. This partnership aims to “future-proof” the dollar against developments in the way consumers and businesses transact across the world. The Digital Dollar Project aims to protect the USD’s status as the world's reserve currency, which may be under threat with other national governments exploring the launch of new ones.
The whitepaper also emphasizes the decline in the use of physical cash, as well as the benefits of a digital dollar. Creating a digital dollar would also enhance competitions in international payments, which would make a strong statement regarding the importance of the American currency.
Crypto-Crime Is on the Rise
According to a CipherTrace report, just under $1.4 billion was stolen through various scams in the first five months of 2020. This figure suggests that 2020 could be the second most costly year in terms of crypto scams. However, the vast majority of the losses can be attributed to one particular scam: a China-based Ponzi scheme.
Overall, there has been a dramatic decrease in illicit funds received by crypto exchanges, with just 0.17% of funds traced directly to criminal sources. This means that more criminals are finding it harder to offload the illicit funds directly into cryptocurrency exchanges. On the other hand, it might also suggest that criminals are getting better at covering up the origins of stolen funds.
Fintechs Shine Amid Government Stimulus Packages
The fintech industry has been presented with a huge opportunity to help struggling global businesses amongst the economic storm brought on by the pandemic. In the US, fintech businesses were directly presented with the opportunity to play a key role in the US stimulus effort. Domestic fintech companies are also helping businesses through the Paycheck Protection Program (PPP) lending scheme. The US scheme went from looking at business earnings, to seeing if they could cover debt. They have proven to be of big help and have received a lot of praise.
In short, things are looking good for fintech businesses in all respects.
Luigi Wewege is the Senior Vice President, and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an Instructor at the FinTech School which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of: The Digital Banking Revolution.