Innovation in any sector creates winners and losers, and fintech will be no different, says Gerald Brady, Silicon Valley Bank. Some banks will thrive and others will find it hard to adapt.
While fintech is undoubtedly disruptive, Van der Kleij warns against underestimating the capabilities of big banks. “They can afford to try many different innovations – either by acquiring fintech innovators, partnering with them to help give them scale to exciting products or services, or commissioning disruptive products that could cannibalise/replace their own businesses.”
Rather than render traditional banking redundant, Gulamhuseinwala adds that the majority of fintechs are actually piggy backing existing infrastructure and complementing it.
There are lots of examples, but we’ll focus on three. First, there’s tackling financial exclusion. In Bangladesh for example, where an estimated 70% of the population live in rural areas and fewer than 15% are connected to the formal banking sector, bKash allows Bengalis to send and receive money safely via mobile phones. (And financial exclusion isn’t limited to developing markets – according to the Resolution Foundation, 4% of UK households don’t have bank accounts.)
Second, companies like Azimo and Transferwise are bringing a new level of price transparency to remittances (sending money overseas), which has typically been associated with high fees.
Third, crowdfunding and microfinance platforms give entrepreneurs, small businesses and individuals access to funds where traditional banking might not. Tracey Horner, head of Lendwithcare, says that since its launch five years ago, 21,000 lenders have loaned almost £6m to around 17,000 entrepreneurs in developing countries. Dan Sutch, Nominet Trust points to Modest Needs, which empowers the general public to make small ($10-15) emergency grants to low-income workers in the US.
In the UK, Pennies allows customers to round up their purchase price and donate to charity electronically at point of sale. “It’s not a breathtaking fintech IT innovation, but it’s a genius, simple bit of social innovation,” says Zurawski.