Traditionally, banking has been viewed as one of the most staid, old-school, stuck-in-the-past industries.
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Many people have in the past opined that perhaps over time, Banking might become regarded as somewhat of a “utility” service – rather like water, gas and electricity services – running in the background to support shiny devices on the surface – but that nevertheless, banking would always exist.
“FinTech,” which of course, is short for financial technology, intends to totally disrupt the lives of those working in the financial world – and perhaps completely change the very structure of banking and other monetary systems.
Anyone following news articles about Bitcoin, Ethereum and more generally, Blockchain will realise that the technology offers so many potential benefits – that banks (even Central Banks) are actively working on projects collaboratively – and/or by ‘partnering’ with FinTech companies – to prove whether the technology actually can deliver – as opposed to possibly being hype.
According to a survey conducted by Citigroup, in 2015 almost $20 billion was invested into FinTech companies – a ten-fold increase from just five years earlier.
These new technologies are poised to fundamentally disrupt the biggest players in finance. Numerous e-payment services now compete with the likes of Western Union and PayPal – Crowd-Funding type companies make getting a loan cheaper and easier. Foreign-Exchange services are under serious threat from the likes of Circle and TransferWise who claim to be up to 30 times cheaper than banks. Bots will soon advise you and manage your money from your smartphone. Finally, Bitcoin followers believe their digital currency will become the new gold-standard and even Reserve Currency.
According to a Citigroup report last week, FinTech may be on the cusp of an “Uber moment,” as Antony Jenkins, the former chief executive of Barclays, predicted last year. Some 800,000 people will have lost their jobs at financial services companies to some of the newly dreamed up software in a decade, the report said. “Roughly 60 to 70 per cent of retail banking employees are doing manual-processing-driven jobs,” the report explained. “If all the current manual processing can be replaced by automation, these jobs can disappear or evolve.”
Despite these predictions – there remain many not inconsequential barriers to the prospects of the FinTech companies’ success.
Legal, regulatory and compliance requirements have evolved over many years and are an essential part of the banking infrastructure – at a significant cost.
How will FinTech companies demonstrate that their systems and procedures are fully compliant with the volumes of laws and regulations that are in place to protect the public?
Some US Regulators have offered a potential olive branch in these respects:
The Office of the Comptroller of the Currency recently said it thought a new regulatory framework needed to be created to help foster innovation among FinTech companies while ensuring compliance.
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Much lobbying and new-lawmaking would seem to be on the horizon!