The banking industry has been undergoing something of a shake-up over the past few years. Following the financial crisis of 2008, and in accordance with recommendations set out by the Independent Commission for Banking, the government announced changes that would encourage more competition to the ‘Big Four’ high street banks from ‘fintechs’ – but what exactly are they?
Investopedia defines the term ‘fintech’ as a portmanteau of the words ‘financial’ and ‘technology’. The term was originally used to describe the back-end tech used within financial institutions, from systems supporting large banks to back office systems for IFAs. In more recent times, it has become synonymous with technical innovation in the financial industry in general, referring to anything from a startup challenger bank to bitcoins.
The advantages of fintechs
The advance of fintech has allowed fresh new financial businesses to rise to the challenge. The advantage of developing lightweight apps that run on mobiles is that they are relatively low cost, especially for businesses that are 100 per cent digital. This means they can keep their fees low. Coupled with a simple style of banking, this appeals to the millennial generation, which is completely at home conducting its life through a tablet or smartphone.
How are the startups affecting the big banks?
While the fintechs may have the upper hand when it comes to competitive fees and quick transactions, it is unlikely that the need for face-to-face meetings with financial advisers will ever diminish, especially when a customer’s investment portfolio reaches a critical size. Technology providers such as https://www.intelliflo.com/ will continue to innovate; therefore, existing financial institutions will continue to evolve.
While fintechs may be able to keep their fees low, they are relatively new and many do not yet have the advantage of brand recognition. They still need to earn the trust of potential customers.
Having said that, being new means they do not carry the baggage associated with the financial crisis. Of course, they are still as tightly regulated as any of the high street banks and other financial institutions.
It is unlikely that the influx of new financial businesses will overthrow any of the established heavyweights; however, they will level the playing field a little and perhaps change the way in which their larger competitors operate. How many of them will survive remains to be seen.