How Financial Technology Companies (Fintech) can Complement Bank Services, Products

By 31st May 2016Banking, Fintech

By Imee Charlee C. Delavin, Reporter Business World Philippines

FINANCIAL TECHNOLOGY (FinTech) firms are seen to complement the products and services offered by banks, providing growth areas for lenders to expand market reach and tap the unbanked sector.

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FinTech companies were earlier seen to play an increasingly important role in the financial services industry — gaining substantial scale from accessing large unbanked sectors — with the emergence of tech-savvy classes providing the growth areas.

Malik Khan Kotadia, Global Banking Group senior vice president, said FinTechs will allow lenders to adapt to the changing financial environment at a much faster pace noting how banks have been adapting “but the change is very slow and very incremental.”“Things have changed around us … banking environment has been changing too. We see banks moving, but moving slow. With the growth in mobile penetration, FinTech becomes an enabler [for the banks] to help expand and attract other markets, tapping into other segments that banks would otherwise have difficulty [going after],” Mr. Kotadia said in a presentation at the BankTechAsia 2016 Manila series on retail banking technologies in Makati on Tuesday.

In the Philippines, he noted FinTech companies and banks could work hand in hand through partnerships and collaborations where “it makes sense.”Smartphone penetration in the country stood at 34% and is growing fast with a push towards mass market adoption of mobile internet.Studies conducted by the global public-private group Better Than Cash Alliance said that Filipinos make about 2.5 billion payment transactions per month worth $74 billion, but only 1% of these is transacted electronically and 99% of the transactions are paid either in cash or checks.

247_7756Mark B. Perez, retail banking head for Metropolitan Bank & Trust Co. (Metrobank) shared the same view, saying FinTechs are “allies rather than threats” to the banks.“I generally think there are a lot of opportunities for FinTechs and banks to work together. While there are spaces where the FinTech companies seem to be better than banks, at the very core of the banking systems are the banks, so banks have the capability to drive the use of [FinTech],” Mr. Perez said.“FinTech provides us with something to learn from. You have to look at it like partnerships — e-commerce is to retail stores and FinTech is to banks … eventually there will be stand alone banks, banks with FinTech components and FinTech firms alone. Its the natural progression of technology. That’s the way to go.”

Debt watcher Fitch Rating had said FinTech firms could potentially change the banking status quo and possibly disrupt the financial sector, with risks where banks and regulators have limited experience in managing new technologies.

Nonetheless, FinTech remains a “nascent sector” despite rapid growth in large markets with peer-to-peer (P2P) lending, online payment systems and digital wallets focused on retail consumers.

“The rise of FinTech could raise risks to traditional banks which fail to transform over the long term. The rapid adoption of disruptive tech could raise security and operational vulnerabilities for banks if systems and resources to manage the new technologies are not enhanced … New technologies could also alter banks’ business and operating models in the long term by eroding a previously lucrative business line or reliable funding source, and thus indirectly affect credit profiles as well,” it added.

WED_9491Lito M. Villanueva, Voyager vice president and head of Fintech, Digital Inclusion and Alliances, said during the same event that “FinTech is not about disrupting banks.”
“It is about enabling partners to promote cost and service efficiencies, engaging regulators on emerging digital landscape and empowering consumers via frictionless experience leveraging on the ubiquity of mobile,” Mr. Villanueva said.In particular, he noted that FinTech acts as enabler — in emerging markets like the Philippines — with banks still at the core of operations.“Banks, just like all big institutions, needs to adapt to and ride the digital tsunami, lest they become irrelevant. Digital partnerships will pave the way for reducing capex (capital expenditures) and achieving ever greater cost efficiencies,” he added.Mr. Villanueva noted that digitization can enhance the banking system’s return on assets by 0.3% to 0.4% which can translate into potential reduction of interest rates for borrowers by 1-1.5%.Smartphones, he noted, will start driving bank growth as it becomes the primary banking channel by 2017. In his presentation, the Voyager executive said 37% of cities and municipalities are without any banking presence; and it takes an average of 21 minutes to reach the nearest financial access point. The 16,316 automated teller machines (ATM) around the country also brings the ratio of ATM to people at 2:10,000 nationwide.
WED_9636 For his part, Randolph Montessa, Land Bank of the Philippines first vice president and head of the card and e-banking group, said technology is the greatest enabler that will allow banks to service the unbanked sectors of the society and promote financial inclusion.“Banks should leverage on technology to enable full financial inclusion,” he said.

BSP Governor Amando M. Tetangco, Jr., earlier said shifting to an electronics-based payment system should help promote financial stability and inclusion in the country.

This article was also featured on print

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