Conventional banks may have been around since time immemorial, but challengers have started poking and prodding at the industry to disrupt the status quo. These challengers fall under one umbrella term: fintech.
What is fintech?
Financial technology, or fintech, is a catch-all term that refers to any business or product that uses modern and advanced technologies to deliver financial services to consumers and businesses. This fast-growing industry intends to challenge traditional financial services and disrupt the sector by offering cheaper, faster and safer solutions to a variety of financial activities.
The payment landscape has changed dramatically since the arrival of fintech solutions. Electronic payments continue to gather followers, digital security is becoming a major concern and virtual banking a reality. One aspect that hasn’t been evolving quite so rapidly is technology in the field of cross-border payments, and especially those in the B2B world. Nonetheless, Ernst & Young estimates that global cross-border payments will reach $156 trillion by 2022 and of that number, the services firm estimates that $150 trillion will be B2B driven. Our article on B2B payment trends takes a more detailed look at this sector and the interest it is garnering.
Traditional banks may be working hard to adapt but with no common global system in place, sending money internationally remains a challenge. Lack of transparency, high costs and long transaction times remain a major pain point for businesses of all sizes. As a result, fintech services are stepping in to fill the gap left open by traditional banks. With these new players in town, many businesses tackling international payments may be wondering whether traditional banks or fintech companies could be a better ally. Based on a 2019 Ernst & Young study, the general fintech adoption rate has grown to 64% which would suggest fintech has serious benefits to offer. We have classified the benefits that set fintech businesses apart in five categories:
While traditional banks aim to provide as many financial services as possible under one roof, fintech companies take a different approach. They tend to focus on one issue they believe could be improved using advanced technology. As a result, the number of financial service providers available to customers is huge. In fact, the average smartphone user today has up to 2.5 fintech applications. More choice also means more flexibility. Users can opt for the fintech solution that suits their specific needs, often as a sort of “add-on” to their more traditional banking habits. On the other hand, traditional banks offer far less flexibility and may not always be able to deliver on a client’s needs, regardless of how loyal the client is.
The 2008 financial crisis might be a thing of the past, but it has left its marks. Nasty surprises and hidden costs are one of them and fintech players are seeking to right this wrong. Today’s consumers are wary of unexpected fees which is why fintech firms believe in laying out all their cards upfront. When it comes to payments, transparency also means better visibility regarding payment timeframes and the progress of transactions. Today, people are used to tracking where things are, whether its parcels or pizzas. Naturally, they expect the same level of transparency from their banks. iBanFirst’s Payment Tracker provides detailed information about the progress of an international transaction, each step of the way and until it safely arrives at destination.
Whether it’s currency conversion rates, processing fees or commissions, fintech businesses know that users today are particularly attentive to costs. That is why they offer payment solutions that include as little extra costs as possible and a competitive overall price. Fintech innovations often make it possible to offer lower prices to consumers and businesses compared to traditional banks. Having a better visibility of the various costs incurred may represent considerable savings for a company. In that regard, iBanFirst’s calculator lets businesses estimate the savings they can make on their foreign currency transactions.
In today’s fast-paced world, waiting for an international payment to go through, or a bank to grant a loan can sometimes take what feels like forever. That is why fintech companies rely on efficiency to set themselves apart. Where traditional banks rely on age-old processes and multilayer checking, fintech innovations such as the use of algorithms, artificial intelligence, and automation work towards speeding up processes. The advancements of fintech make it possible to process applications and approvals much faster than traditional banks, which results in a better overall user experience. But speed also mean accessibility and another benefit of finech is its convenience.
With social distancing measures and staff reductions, the COVID-19 pandemic has contributed to the rapid rise of fintech. Given fintech companies heavily rely on the Internet and mobile connectivity, they came out as one of the big winners of the pandemic. Their high level of connectivity allows them to reach a wide audience and allows their audience to reach them at the touch of a button. The flexibility they offer in terms of time and location make them entirely adaptable to their clients’ needs. While traditional banks tend to rely on in-branch appointments that demand patience on the part of the client, some fintech firms use chatbots, making them easily accessible 24/7 and in many languages. Today, customers look for convenience in every aspect of their lives and fintech firms have learnt to meet this need far quicker than traditional banks.
What does the future hold?
The future of fintech is bright. According to a recent UBS report, revenues from fintech are expected to reach $256 billion by 2025 with a growth rate three times faster than the traditional financial sector. Nonetheless, it is also safe to say that traditional banks will not be disappearing anytime soon. While the benefits of fintech have never been so evident, dethroning traditional banks will prove to be a difficult feat. Partnerships between fintech businesses and banks are the most likely outcome for the future and offer the best of both worlds. Fintech brings flexibility, agility and innovation while conventional banks, as well-established, trusted institutions, provide a stable environment and can make use of vast amounts of customer data. With conventional banks able to provide a sound and trustworthy environment, and fintech firms banking on their niche expertise, the financial service landscape of the future will undoubtedly require the two industries to work hand in hand.
Remember that putting all your eggs in one basket has never been the recommended strategy. Clients who wish to make the most of the new players on the block will undoubtedly adopt a smart approach and combine the two offers. By taking the time to assess the offers available among traditional banks and fintech, clients will have numerous options to choose from. Every player will have their speciality and by picking and choosing between what’s on offer, clients will be able to create the winning formula most suited to their specific needs. When it comes to B2B cross-border payments, if you want to know more about how fintech can help your business, contact us and our experts will walk you through our services and advantages.