Banks play a crucial role in the financial system, so it’s necessary to timely assess the risks and opportunities that Fintech solutions actually represent for them.
The Fintech revolution is often said to have disrupted traditional banking, however, there are also professionals who say that it has only strengthened the portfolio of existing banking products. Who is right?
In this article, we will discuss the main roles of banks in the financial sector and evaluate the impact that Fintech companies have on banks today.
The key role of banks in the financial system
We all know that banks are vital for the normal functioning of the financial sector. They take funds, pool them, and transform them into lending money for those who need funds at the moment. By transforming assets and liabilities, for example, by turning
deposits into mortgages and loans, and providing transactional service, banks guarantee the stability and funds circulation in the economy.
FinTech is disrupting the provision of liquidity and providing a strong competition for the banks. Emerging Fintech finds it very easy to find investors and attract impressive amounts of funds. While traditional banking faces a lot of strict regulations
and criticisms for their unwieldy bureaucracy, Fintech provides for higher flexibility and offers a variety of cutting-edge credit and payment solutions including blockchain, peer-to-peer lending, decentralized crowdfunding platforms, etc.
Fintech solutions have a great potential because they can build ecosystems that feel intuitive and tailored to the user’s needs and promote the development of new banking products and services and the improvement of existing ones.
Being supported by advanced technologies and investors’ funds, Fintech products are able to speed up transactions, reduce their cost, and also assist banks in gathering the necessary funding resources, opening and managing more savings and current accounts,
gaining access to emerging markets, and so on. Traditional banking simply cannot compete with such a highly efficient and well-backed-up competitor. The only advantage the banks still hold over Fintech is the level of trust from the public and the proximity
to their clients in the physical world.
However, the reality is that banks don’t have to compete with Fintech service providers but rather follow their example and integrate new technologies and services into their process. By merging Fintech with traditional banks, we can omni-channel branchless
banking that uses various digital means to stay close to the clients and depends less on its branches to function.
The Fintech revolution has presented a challenge for traditional banking that banks could use to improve their services. Banks should find common grounds for cooperation with FinTech firms and adopt FinTech solutions. However, for that to happen, the financial
sector should also concentrate on resolving common challenges caused by strict regulation for banks and the regulatory arbitrage by certain FinTech firms.