Abu Dhabi, UAEWednesday 22 May 2019

Remittance firms should consider fintech start-ups as partners rather than competitors

According to an EY survey, 60 to 75 per cent pf those polled believe fintech offers a better cost, integration with social media and speed proposition for customers but that does not mean it will damage the prospects of traditional financial services providers

Sudhesh Giriyan, the chief operating officer of Xpress Money, says fintech's focus on technological innovation throws up ideas that the conventional industry can harness. Delores Johnson / The National
Sudhesh Giriyan, the chief operating officer of Xpress Money, says fintech's focus on technological innovation throws up ideas that the conventional industry can harness. Delores Johnson / The National

Financial technology, or fintech, is being heralded as a disrupter to conventional finance provision. The narrative is also reflected in media headlines and would have you believe that agile fintech startups will turn conventional businesses topsy-turvy.

It is true that the fintech sector is growing rapidly worldwide. A recent Statista report estimates that fintech will be worth around US$20 billion by 2017. In the GCC milieu, fintech has the ability to enhance the customer value proposition across banking, insurance, asset management and wealth management. According to a 2017 EY survey, 60 to 75 per cent of survey participants believe that fintech can offer a better customer proposition in terms of ease of use, cost, speed and integration with social media.

But it’s not clear that the rise of fintech will be detrimental to conventional financial services providers. In the GCC, the narrative within the industry is one of collaboration, not competition. For instance, 2016 GCC-wide figures by Statista showed that a full 57 per cent of banks and financial services providers saw fintech startups in their operational space as potential partners, while only 22 per cent saw them as competition.

The reason is quite clear. Fintech start-ups tend to be technologically led. They harness mobile tech, social networks and a well-designed user interface to bring services directly to customers. But this technology-first model is most useful in the first and last mile fulfilment, ie, when a customer requests a transaction, or is notified of its completion. When it comes to actual transaction processing, fintech startups often lack the size, scale and well-developed treasury functions needed to fulfil global requests.

Then there is the issue of regulatory compliance – which requires data protection, information security, Know Your Customer regulations, anti-money laundering measures and a host of other protections. Lean and nimble start-ups have a harder time meeting resource-heavy compliance requirements.


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Fintech operators also often lack the physical reach and customer goodwill that conventional brands have built over decades of operation. Earlier this year, Dataconomy called building identity and trust in a data economy one of the biggest challenges confronting fintech firms. This challenge is amplified in the GCC market – where customers are very risk averse in money matters, and still tend to prefer face-to-face interaction and dealing in cash.

On the other hand, conventional firms are aware that digital innovation is the way forward. They realise that fintech firms can bring flexibility, agility and innovation to the top table. Some financial institutions are choosing to meet the threat of disruption by setting up their own digital incubators and innovation teams. Xpress Money, for instance, has developed it’s own plug n’ play fintech platform designed for B2B partnerships - where financial institutions can plug directly into the system to use Xpress Money’s international transfer and direct account credit services.

But mutually beneficial fintech partnerships can be a game changer. We are heading for what might be called a hybrid model – where a transaction is initiated in-app but is then handled by conventional partners through systems that are already compliant with regulations and have a robust track record of transaction fulfilment.

Collaboration between conventional financial institutions and fintech firms goes far beyond the instant glamour of apps and social media. Some of the most rewarding partnerships are with larger fintech providers exploring the power of mobile internet, cloud computing, big data and other new technologies to help institutions better understand their customers’ behaviour and predict their needs. Fintech is helping conventional finance work with big data in new ways to curate rewarding insights.

And finally, fintech’s relentless emphasis on technological innovation throws up ideas that the conventional industry can harness. Consider the blockchain technology - which first jumped into the spotlight as a method of record keeping for cryptocurrencies. Now, the UAE has decided to harness the technology independently of its original cryptocurrency context.

The Dubai government has announced a move to paperless operations that rely on virtual ledgers updating in real time as part of an overall blockchain strategy. The technology is incredibly promising for financial institutions too as blockchain enables instantaneous processing for post-trade settlements involving custodian banks. It offers real-time cross-border payments, multi-party tracking, and the rapid management of letters of credit. It also enables faster automated settlements that reduce the need for resource-intensive manual reconciliation.

The final analysis is clearly in favour of collaboration. Fintech start-ups need the resources, compliance, processing power and brand equity that traditional operations provide. Meanwhile, partnering with fintech firms can help traditional financial institutions deliver better services faster, and in more innovative ways.

Sudhesh Giriyan is the chief operating officer of Xpress Money

Updated: September 21, 2017 10:46 AM