Fintech or financial technology is a trendy word that is usually used to describe emerging companies that disrupt the banking business.
Fintech or financial technology is an over-hyped word that is usually used to describe emerging companies that disrupt the banking business. Fintech is indeed gaining traction, but financial institutions and traditional banks are increasingly seeing them as partners rather than competitors.
Banks and Start-ups working together
On one hand, financial technology start-ups may possibly benefit from larger institutions because they can help them scale-up. On the other hand, traditional financial companies and big banks can learn from the fintech sector – in particular, their innovation and flexibility should not be underestimated.
“We are actively seeking startups for our members to partner with.”, commented Robert Nichols, president of the nearly 6,000-member American Banking Association (ABA).
Nichols said that ABA has tried to match some start-ups with banks, and it has invited disruptors to present at its annual convention that takes place this month in Chicago, according to a report published by Wharton University of Pennsylvania. As he added, the banks have good reputation and trust, whereas the start-ups have ideas that might enhance customer experience.
Banks innovating on their own
Banks are also striving to innovate on their own, as Nichols stated. For example, Capital One has recently integrated Amazon`s Alexa service that can track spendings, make payments and manage Capital One`s customer accounts. Users only need to download the Amazon Alexa app and enable the Capital One skill in a snap, as Capital One wrote on their website.
Other banks like Bank of America have debuted a chat bot called Erica. Users can deploy the service by logging into their Mobile Banking app. By speaking aloud or writing messages to Erica, they receive audio and text responses from the AI-powered solution.
Another service used by some banks is Zelle, an offering that claims to move money fast, safe and easy. The app lets customers send money in just few clicks within minutes from one bank account to another, according to the company`s website.
In addition, the Federal Reserve Bank of San Francisco has launched a fintech portal in May to help companies navigate the regulatory system and show them the way for further assistance, as Tracy Basinger, the bank`s director of financial institution supervision and credit told [email protected]
“We have no doubt that fintech innovation can introduce real benefits for consumers.”, as she said as quoted by the report.
It is reported that the Office of the Comptroller of the Currency (OCC) that regulates more than 1,600 banks, has proposed a plan to charter fintech companies as special purpose national banks. As Basinger explained, regulators do not want to stifle fintech innovation.
Still, several state bank regulators filed a lawsuit against the proposal, according to CNBC. John Ryan, president of the Conference of State Bank Supervisors (CSBS), has supported the regulator`s decision to sue the OCC. State regulators are said to support Vision 2020 that presents a fintech licensing and supervisory system. At the same time, CFPB decided to enforce no action or supervision on Upstart Network, a company that uses alternative data in making credit and pricing decision. The CFPB is allowing it, but the company needs to provide lending and compliance information to the regulator.
Taking everything into account, financial technology companies are positioning themselves as major players on the financial scene. Banks have an interest to cooperate with these newly emerged business, so that customers can be happier with their services. Regulators, on the other hand, try to draft regulatory frameworks that are not standing in the way of innovation. It is to be seen whether this complex financial ecosystem will manage to co-work in the best possible way.