Why FinTech Cannot Exist Without Banks

Why Fintech Cannot Exist Without Banks | Soumaya Hamzaoui | LinkedIn According to an article which first appeared in the FT, the digital financial services revolution that is taking over the banking sector is set to take out almost two-thirds of earnings on products such as payments and retail lending.

There was more bad news for the banking sector from a recent McKinsey report that said FinTech competition would reduce profits from most of their retail business by up to 60%.

The report also highlighted that Banks last year made $1.75tn of revenues from origination and sales activities, on which they earned a 22% return on equity, while they made $2.1tn of revenue from balance-sheet provision at a return on equity of only 6%.

Start ups have become Up starts in the financial services space, it is a vast sprawling and fragmented market with multiple layers of margin that can easily be attacked and reduced: it is good nezs for the consumer but less so for the banks, the key question remains however on the regulatory position, this is not a market for light regulation.

Interestingly in emerging markets the focus is still very much on the regulatory situation, indeed many central Banks are opposed to allowing fintech providers to become as powerful as say M Pesa became in a regulatory vacuum.

In Africa and Asia for example the growth in Fintech is primarily delivered through the mobile, at first transactions were as simple as person to person payment , but now there are multiple financial services being launched across many parts of Africa and Asia that are targeted to distribute financial services evenly , with particular focus on the SME markets of growth.

The regulator is key in all of this, Banks do some things remarkably well — notably the current account, which allows people to store money in a way that keeps it safe and permanently accessible. Few in Silicon Valley want to take on that heavily regulated bit of finance and it is no different in emerging markets Many admit they depend on it: after all, you need an account (not necessarily bank but virtual) to use most Fintech services.

It will be interesting to see where this leads next.

Read the original article here.