The internet has disrupted many industries around the world - media, publishing, entertainment and shopping, just to name a few - and the banking industry is not safe either. With rapid developments in financial technology changing the entire banking ecosystem as we know it, some of the largest players in the FinTech industry are no longer private (or state) banks but tech companies. In Western countries, when people want to transfer money to other people, their go-to first choice are mobile apps like Venmo or PayPal to do the online transaction. This bypasses using digital platforms created by traditional banks. Even though these practices are yet to become globally widespread, experience has shown that even developing countries adopt new technology quickly if it solves fundamental problems. This begs the questions - will banks become obsolete in the near future?
Strengths and Weaknesses of FinTech banking solutions not backed by retail banks
+ Faster, Cheaper
Online transactions facilitated by FinTech are usually much faster and cheaper for customers rather than going the traditional route with physical bank visits. Whereas in the past, customers had to spend hours in queues to carry out simple functions like withdrawing money from their bank and visiting a different bank to deposit it to someone else’s account, this entire process can be done within a few seconds using mobile apps like Venmo. This greatly saves time and money spent on traveling and visiting the bank branches. Banks also encourage usage of their digital platforms by charging higher fees for over-the-counter activities that have their equivalent digital alternatives.
+ More Accessible
Cloud-based banking services facilitated by mobile apps means that remote access and online transactions are possible. These mobile apps are also inclusive for customers who live in rural areas or are frequent travelers, as they can carry out their day-to-day activities using their mobile phones without needing to leave their homes. During the Covid-19 pandemic, companies who had adopted cloud-based, digital platforms were able to provide their customers with uninterrupted services, as well as allow their employees to work remotely.
- Trust Issues
The public are yet to entirely trust non-banking institutions like large tech companies (like Facebook or even Google) with the bulk of their money. As these companies are not entirely covered by the stringent government regulations that apply to retail banks, there is a sense of financial risk associated with these companies. While people are happy to shift basic activities like online transactions to mobile apps, they would still mostly prefer to store their life savings in retail banks. There is even a large group of people, especially in developing nations, that still don’t entirely trust simply making payments online.
Strengths and Weaknesses of Retail Banks
+ Tried and True
For centuries, people have trusted retail banks with their finance and money. The systems and processes are so firm and rigid that the risk is generally less (depending on the chosen bank) and, begrudgingly, customers conceded that retail banks are currently the most secure places to store their money. There are also national regulations and facilities put in place to help banks stay out of financial difficulties that further negate any risk.
+ Government backed
Strict regulations in the banking industry means that all transactions and banking activities are strictly monitored by the government. The government will not allow large banks to fail and will bail them out if need be, which ensures that customers’ money is mostly secure.
The centuries-old banking industry is reluctant to change their methods, even though their customers have moved on with the times. Most banks are slow to adapt new technologies and customers end up being frustrated with outdated procedures and operations.
- Not Customer-oriented
While accepting that it is secure, most customers inherently dislike the entire banking industry on principle. Over the years, banks have built themselves a reputation of predatory behaviour, by taking advantage of desperate customers and for amassing enormous amounts of wealth using customers' wealth that is not passed down to the customers.
When looking at the current state of affairs, it is safe to surmise that the retail banks of today will not become obsolete any time soon. While they were admittedly rather slow to adopt FinTech and keep up with customer demand, they are making up for lost time in long strides. What we can expect to see in the near future is not the obsolescence of retail banks, but a complete overhaul of traditional banking. While retail banks will face challenges when converting their legacy systems to new, cloud-based digital platforms, this is the next logical step. Banks will see the loss of basic banking functions such as online transactions to third party mobile apps, but their hold on core banking activities will remain strong. Banks are too integral to the current economic state of the world to go down without a fight.