Will Every Company Be A Financial Services Company In The Future?
- Annusha Bridglal
Key Takeaways:
FinTech transforms banking with tech-driven, responsive, personalized services.
Collaborations between banks, tech giants, and startups redefine customer experiences.
Traditional banks now recognize the value of digital digital tools’ role in customer choices.
The Covid-19 pandemic accelerated digital payments, with 95% in Trinidad and Tobago favoring digital (FinTech TT, 2021).
Tech-bank collaborations offer seamless digital experiences while Caribbean banks maintain dominance.
FinTech disrupts Caribbean finance, challenging traditional norms.
Digital financial service demand post-pandemic poses opportunities and challenges for local banks.
Adaptation to evolving customer needs crucial for Caribbean banks.
The FinTech revolution reshapes customer interactions with finance.
Traditional institutions must adapt, embracing tech advancements to stay competitive
FinTech integration signals innovation, promising a dynamic future for financial services.
The concept of Apple Inc., the renowned mobile giant, venturing into the banking industry may raise some eyebrows initially. However, considering the increasing collaborations between tech giants and financial institutions, the idea is not as far-fetched as it may seem. In today’s rapidly evolving landscape, non-financial companies are diversifying into financial services, posing an intriguing challenge to traditional banks. These innovative disruptions are enabling non-financial entities to enter the markets that banks have historically dominated. Let’s delve deeper into how Apple, Google, and Amazon are revolutionizing this once-exclusive industry.
The Rise of Fintech
While the infiltration of financial services by non-banks is not a new concept, it has gained significant momentum, especially with the rapid evolution of fintech in recent years. But what exactly is fintech?
Short for financial technology, fintech refers to the innovative application of technology in financial services. Some popular examples include payment and money transfer services like PayPal- which is a widely used platform, and Square, which offers payment processing solutions for businesses, including the popular Square Cash app for personal transactions.
Above all, fintech has ushered in a crucial breakthrough in the banking realm, enhancing services to customers through greater responsiveness, personalization, and security. This progress is driven by collaboration, as financial institutions, tech giants, and agile startups join forces to meet the needs of increasingly busy and privacy-conscious customers. Through online platforms, they offer more efficient, user-friendly, and cost-effective alternatives.
To comprehend the expanding partnerships between traditional financial entities and non-bank enterprises, let’s explore the role of the traditional banking environment.
Embracing Technological Advancements
While some banks initially viewed technological innovation as secondary to their core services, many financial institutions have recognized the crucial role that digital tools play in customer decision-making. The shift has been further emphasized by the pandemic, with digital payments emerging as the preferred method for 95% of the Trinidad and Tobago population (FinTech TT, 2021). Consequently, banks are collaborating with tech companies to provide seamless digital experiences for clients.
Although the Caribbean financial sector has seen the rise of innovative players like PayWise and WiPay, traditional banks continue to dominate by offering a wide range of financial services, from loans to mortgages. These banks boast a deep understanding of local markets and possess extensive networks.
The Power of Collaboration
Collaboration between agile tech startups and traditional banks is crucial for FinTech because it combines the innovative capabilities of startups with the established infrastructure and customer base of traditional banks. Startups bring agility, cutting-edge technology, and the ability to rapidly develop and implement novel financial solutions. On the other hand, traditional banks offer regulatory expertise, a broad customer trust base, and extensive resources. This collaboration allows for the creation of more robust and customer-centric financial products and services, addressing the evolving needs of the digital age while ensuring compliance with industry regulations. The partnership fosters a synergistic approach, leveraging the strengths of both entities to accelerate the development and adoption of transformative FinTech solutions.
For instance, the collaboration between Goldman Sachs and Apple in 2019 resulted in the groundbreaking Apple Card, offering unique benefits like cashback rewards and advanced security features such as facial recognition technology. This partnership aimed to revolutionize financial transactions and enhance customer experiences. Leveraging Apple’s vast user base and brand recognition, Goldman Sachs extended credit amounting to $736 million to Apple Cardholders within a short timeframe.
This successful collaboration showcased how merging the strengths of the tech and finance sectors can yield mutual benefits. Tech companies leverage their expertise in digital platforms and user experience design to introduce innovative financial products that improve convenience and accessibility for customers. Financial institutions provide regulatory expertise, risk management capabilities, and funding to scale these products, ensuring customer funds’ safety through regulatory protections like the Federal Deposit Insurance Corporation (FDIC).
In line with this trend, tech giant Google has partnered with several banks to offer the Google Pay app, which now includes a savings account feature.
Innovative Savings Solutions
Apple Card customers in the US now have the option to open a savings account and earn interest through the Apple savings account feature. Despite initial fluctuations in market conditions, Apple now offers an APY of 4.15%, highly competitive among existing savings account offerings (Bankrate, 2023). Partnering with Goldman Sachs once again to manage these savings accounts provides customers with FDIC coverage, ensuring the safety of their deposits.
This move exemplifies Apple’s commitment to expanding its financial services through partnerships with established institutions like Goldman Sachs. By providing a savings account with a competitive interest rate, Apple solidifies its position in the financial services industry while offering a valuable service to its customers.
“Our goal is to build tools that help users lead healthier financial lives, and building Savings into Apple Card in Wallet enables them to spend, send, and save Daily Cash directly and seamlessly — all from one place.” – Jennifer Bailey, Apple’s VP of Apple Pay and Apple Wallet.
These non-traditional savings options appeal to customers due to their competitive interest rates and reduced service charges.
Implications for the Caribbean
In Trinidad and Tobago, the financial services sector is experiencing significant disruption due to advancing FinTech, creating a new business landscape that challenges traditional banking norms. The increased demand for digital financial services resulting from the pandemic, coupled with supportive legislation enabling collaboration between traditional banks and FinTech entrants, presents both opportunities and challenges for the conventional banking sector.
With customers demanding real-time, secure, and user-friendly online platforms, banks face intensified competition in meeting these evolving needs.
Looking Ahead
The fintech revolution is reshaping customer interactions with financial organizations. As competition intensifies and user experience takes center stage, traditional financial institutions are forced to adapt to changing consumer demands. It is evident that the future of banking lies in embracing technological advancements and fostering partnerships with tech-driven companies.
As the financial landscape evolves, the collaborative efforts between technology and finance are set to redefine the industry. The integration of FinTech offerings into traditional banking models represents a shift towards innovative solutions that cater to modern customer preferences.
In conclusion, the alliance between FinTech innovators and traditional banking institutions in emerging regions such as Trinidad and Tobago carries a myriad of implications. From fostering financial inclusion to unlocking efficiency gains, providing broader access to capital, facilitating technology transfer, and spurring regulatory development, this collaboration stands as a catalyst for economic growth and adaptability to evolving consumer preferences. As this financial evolution unfolds, paramount considerations must be given to the crucial aspects of data security and privacy, reflecting the delicate balance between innovation and safeguarding the interests of individuals and businesses in this dynamic landscape.
*APY: Annual Percentage Yield (APY) is a measure of the interest rate generated on an investment over the period of a year, taking compounding into account. It is the total amount of interest gained on an investment stated as a percentage of the initial investment.While the company is not making any promises about future interest rates, it’s still a great opportunity for Apple Card users to earn a decent return on their savings.
sources
- Apple Newsroom. “Apple Card’s New High-Yield Savings Account Is Now Available, Offering a 4.15 Percent APY,” April 17, 2023. https://www.apple.com/newsroom/2023/04/apple-cards-new-high-yield-savings-account-is-now-available-offering-a-4-point-15-percent-apy/.
- Bankrate. “Bankrate Apple Savings,” April, 17, 2023. https://bit.ly/3Ld08Ke
- Barbu, Cătălin Mihail, Dorian Laurenţiu Florea, Dan Cristian Dabija, and Mihai Constantin Răzvan Barbu. 2021. “Customer Experience in Fintech.” Journal of Theoretical and Applied Electronic Commerce Research 16 (5). MDPI AG: 1415–33. doi:10.3390/jtaer16050080.
- Berkmen, Pelin, Kimberly Beaton, Dmitry Gershenson, Javier Arze del Granado, Kotaro Ishi, Marie Kim, Emanuel Kopp, and Marina Rousset. 2019. “Fintech in Latin America and the Caribbean: Stocktaking.” IMF Working Papers 19 (71). International Monetary Fund (IMF): 1. doi:10.5089/9781498303248.001.
- Central Bank of Trinidad and Tobago (CBTT). (2006). Supporting the Growth of Small and Medium Enterprises. https://www.central-bank.org.tt/sites/default/files/2017-09/Nova%20Committee%20T%20%26%20T%20Chamber%20of%20Industry%20and%20Commerce%20%20March%202006.pdf.
- Central Bank of Trinidad and Tobago (CBTT). (2021a). Financial Regulators Approach to FinTech. https://www.central-bank.org.tt/sites/default/files/page-file-uploads/financial-regulators-approach-to-fintech_2.pdf
- Central Bank of Trinidad and Tobago (CBTT). (2021b). Financial Stability Report, 2020. https://www.central-bank.org.tt/sites/default/files/presentations/presentation-financial-stability-report-2020.pdf
- FinTech Association, Trinidad and Tobago (FinTech TT). 2021. FinTech Adoption Survey 2021 Trinidad and Tobago. https://fintechtt.com/downloads/FinTechTT-Adoption-Survey.pdf
- KPMG Advisory Services Limited. 2017. “Forging the Future: How Financial Institutions Are Embracing Fintech to Evolve and Grow.” KPMG International’s Global Fintech Survey, 2017. https://assets.kpmg/content/dam/kpmg/xx/pdf/2017/10/forging-the-future-global-fintech-study.pdf.
- Murinde, Victor, Efthymios Rizopoulos, and Markos Zachariadis. 2022. “The Impact of the FinTech Revolution on the Future of Banking: Opportunities and Risks.” International Review of Financial Analysis 81 (May). Elsevier Inc. doi:10.1016/j.irfa.2022.102103.
- Rousset, Marina, Frederic Lambert, Jose Torres, Luis Herrera, Grey Ramos, and Dmitry Gershenson. 2021. “Fintech and Financial Inclusion in Latin America and the Caribbean.” IMF Working Papers 2021 (221). International Monetary Fund (IMF): 1. doi:10.5089/9781513592237.001.
Very insightful article. Definitely stuff I haven’t thought about, but can see how it will affect the future of banking. Looking forward to more good reads!