How Fintech is disrupting retail banking

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FinTech is an ocean and the startups in this segment are touching every nook and corner of the business landscape, I wanted to share how the FinTech players are impacting the retail-banking sector. While there may be many areas, the biggest impact is being felt in the following areas.

Mobile wallets

By 2020 there will be about 6.1billion smartphones in use worldwide connecting about 26 billion devices globally. A report from Ericsson, a telecom major, says that these smartphones will account for 80% of the mobile traffic by 2020. This will be a big leap from 2015, when the number of smartphones stood at 2.5 billion. The mega growth of smartphone users is driving innovation in the mobile wallet space, giving the power to consumers to make payments with ease through their smartphones.

In mobile wallets, a digitized version of the credit card is stored in the wallet, which is in turn linked to the users account for validating the transaction. With payment security being the prime concern, wallets have innovated and introduced security features like biometric authorization and tokenization (wherein the consumer credit card details are translated into temporary “tokens”, enabling payments to be authorized without revealing credit card details to the retailer). These new features make e-wallets at times more secure than the traditional credit cards. As a result, the consumers, especially in the high-income urban areas have shown a very fast adoption rate.

P2P mobile payments

With the advent of Person-to-person (P2P) mobile payments, two individuals can transfer money between themselves via mobile devices. This enables customers to send funds in real time for no cost to any other customer that is on the same application platform. Using theP2P application, the customers can send a P2P payment by using the phone number or the email address of the recipient, to maintain privacy and security; the account details are not disclosed to the users. After that, a payment notification is sent to the beneficiary and funds are made available for withdrawal using multiple channels, such as the bank branch, ATM or at a point of sale. Wells Fargo recently partnered with Early Warning, the industry leader in real-time payments and jumped on the bandwagon to enable P2P payments between its seventeen million plus + mobile banking customers from Aug 01, 2016.

Foreign exchange and remittances

Foreign Exchange payments have been the forte of legendary players and are laced with inefficiency and overheads. This is another area of payments being explored by an increasing number of new non-bank providers. Traditional players have kept the fat margin between buy and sell to account for the exchange rate fluctuations, but technological advances allow the money to be exchanged in (near) real-time, deeply cutting the currency risk faced by banks and traditional FX agencies. Alternative Foreign Exchange service providers sensed this opportunity and are capturing the market by connecting both the sides directly at minimal cost, bypassing the banking networks.

Real-time payments

In real time payments, the recipient receives and can use the money instantly, and the sender gets the confirmation on the status of the transaction in real time. Contrast this to the traditional method of batch processing that took three to five days to process. The real-time systems are designed to operate“24/7”, unlike banking which works only on scheduled days and time.

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The development of real-time payment systems has come as a boon to the consumers in the retail banking, who have managed to cut their working capital requirements. For a small trader who would have waited days for their settlement, real-time payment has a direct, positive impact on their cash flow. The rapid proliferation of real-time payment systems globally has given birth to an ecosystem in which most of the financial institutions, consumers and traders and want to pay friends and customers, settle bills, and transfer money instantly and this is just the beginning, the real-time payment segment will get a further boost as the industry adopts the ISO 20022 protocol, the newly agreed default format.

The humongous growth in e-commerce has enabled and fueled the growth of FinTech players. The change has started from the retail banking arena, the demand for an optimized payment experience by the early adapter, regarding speed, convenience, and multi-channel accessibility will eventually overflow into the corporate payments arena, and we will truly become a cashless economy.

Alex Kong

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