How Fintech will shape banking

Fintech is everywhere. It gives you a queue jump at Starbucks as you pre-order on the app through Apple Pay, it builds you personalised investment portfolios on platforms like Nutmeg and it offers student loans, mortgages and credit through lending organisations like SoFi in the US.

This year’s Economist Buttonwood gathering in New York debated what millennials want from banking, addressing their desire to know what is being done with their money and ideally to see the economics of their financial decisions blended with social good. It is in this space that new fintech players such as SoFi have successfully entered the banking space, offering investors the chance to earn high rates of return while creating positive social impact.

Banks and fintech, the perfect partnership

Banks are working with fintech companies globally to improve their digital offering. Whether acquiring them, partnering with them or creating startup programs to incubate fintech firms, banks are not missing out on the opportunity to cash in on the fintech innovation. Citibank, for example, announced earlier in the year that it was not only planning to deploy blockchain distributed ledger technologies but create its own digital currency, CitiCoin. Goldman Sachs just this week published a patent filing for its own cryptocurrency.

Mobile banking is a perfect example of how banks have used fintech to pioneer the faster and more convenient service which their millennial customers expect. Almost half of millennials in the UK have banked on a wearable device this year, highlighting just how much of an appetite there is among younger consumers for new ways to bank.

Do fintech firms and banks need each other?

Despite fintech’s ever-growing success in major economies, and the potential to penetrate the 50% of the world currently unbanked, barriers still remain.

Banks have hundreds of years of history serving customers and are ingrained institutions in most societies.

Some fintech current account providers in the UK claim to be “unbanks”, providing freedom from the banking institution as we know it. Yet most aren’t actually regulated by the FCA and their money is held by a regulated financial services company in a UK-authorised bank, meaning their proposition is not quite a reality yet.

If fintech is bubbling with innovation which fits consumer demand, and the banks are subject to regulation meaning they operate within an accepted legal framework, then partnerships between the two seem not only logical but applaudable.

Rather than focusing on what defines banking and what defines fintech, the focus should be on the innovation fintech brings to banking and how the banks are working with fintech firms to tailor their proposition to fit these new customer needs. As long as disruption is designed to benefit the consumer and increase competition in a fair way then fintech is set to shape the banking sector in a very advantageous way.