Financial services giant Citi reckons fintech startups are missing out on a major opportunity to disrupt institutional banking. Indeed, it’s inviting entrepreneurs to do so.
“Opportunity is enormous,” said Naveed Sultan, global head of treasury and trade solutions for Citi, speaking during a fireside chat at the Mobile World Congress tradeshow with Ghela Boskovich, founder of FemTech Global, this week. “And the reason I’m saying that is everyone that you know dynamically wants to evolve to a better place.
“Therefore if fintech can come and pick up a part of a value chain which we believe they can execute better than us, at better economics and scalability, the banks have inherent incentive to pass that activity on to fintech and move on to the value added space.”
“Contrary to the common belief, I think there is more opportunity for collaboration with fintech than disruption,” he added. “Particularly on the institutional side.”
Sultan said Citi is already “very engaged” with the fintech space, scanning “thousands” of startups every year — saying it’s taken an equity position in “about 30” so far.
It has established four “innovation centers” in Singapore, Dublin, Tel-Aviv and London to act as its feelers on the fintech scene. And its investments are focused in four key areas, according toSultan — namely: Client experience; scalability; operating model agility; and innovation.
“Pretty much every one of [the fintech startups it’s invested in] have an operating relationship with the businesses,” he continued. “So we are using their technology and integrating into our solutions. And helping them commercialize, appreciate our equity, as well as delivering a better solution to the client.
“So I think the philosophical change is you cannot get to the market fast enough on a proprietary basis. So you have to continuously engage in the broader ecosystem and wherever you believe there is a value point you engage in it.”
While around $21 billion was invested in fintech startups last year Sultan noted that a majority (71 per cent) is on the “last mile” — so either focused on the user or the client experience (“consumer banking, insurance and areas of those nature”, as he put it).
Which he argued means that fintechs playing on the institutional side “actually have a far greater stance in terms of collaboration”. (Which presumably is Citi-speak for ‘you’re more likely to stand a chance of getting to work with us and/or having us as an investor’.)
“I can give you many examples. If you look at what happened in Europe. Single Euro Payment Area. Lots of banks lost their revenues but the banks didn’t want to compete. We were the first bank who took the position we don’t want to compete on the inefficiencies of the market. We want to compete on the value added.
“You look at the cost structure of banking today, you look at compliance, you look at risk, you look at KYC [know your customer], you look at data everywhere. Just out there we’ve met quite a few fintech. So there is already a lot of push. But I would encourage more and more fintech to make a foray into different components of the institutional banking. Because consumer is already happening to a very great deal. And the banks, if your preposition is really good, the bank will have absolute economic incentive to come and join hands with you,” he added.
“So I think we can create a win-win situation — collaborate. You’ll be successful, banks will be successful. And this notion that fintech is going to take banks out, let me tell you that the reports of banks’ demise is greater exaggerated.”
FAQs
Another way in which Fintech is disrupting traditional banking models is through peer-to-peer lending. Fintech companies have created platforms that match borrowers with investors directly, bypassing traditional banks.
How is fintech a threat to banks? ›
Fintech companies use technology and data-mining to bring lenders and borrowers together to allow the easy raising of money without financial institutions. Consider how disruptive that is for traditional banking business models if lenders and borrowers no longer need banks to mediate.
What makes fintech disruptive? ›
The way FinTech disrupts the banking industry is by offering an improved customer-centered approach. A report by the Economist shows that FinTech is fast making banks more customer-centered in their business model. Banks now have more insight into more information through Big Data and Artificial Intelligence.
What is the biggest challenge facing the fintech industry today? ›
Barriers and Hurdles Hindering Indian fintech Companies
- Raising Capital. Capital or funding is the lifeblood of any startup which helps them survive, grow, and stay competitive. ...
- Regulatory Challenges. ...
- Security Risk and Data Breaches. ...
- User Retention and Experience.
Here are some of the biggest risk factors of fintech-bank relationships:
- Africa Studio - Fotolia. Money laundering. ...
- stevanovic igor/Bits and Splits - Fotolia. Data and security. ...
- kieferpix - stock.adobe.com. Accountability expectations.
The banking industry is experiencing this last-mile disruption from fintech companies, retail brand apps, and enterprise applications providing the customer-facing experience. These fintech apps embed bank content and financial features and often bundle them with original content.
What is the downside of using fintech? ›
Disadvantages of Fintech:
up. This means that there may be regulatory issues that fintech companies need to navigate, which can be time-consuming and costly. their systems are compromised, it could result in fraudulent activity.
What is the danger of fintech? ›
The dangers posed by fintech to consumers can be broadly categorized around loss of privacy; compromised data security; rising risks of fraud and scams; unfair and discriminatory uses of data and data analytics; uses of data that are non-transparent to both consumers and regulators; harmful manipulation of consumer ...
Why are fintechs perceived as a future threat to traditional banking? ›
The Disruption Landscape: FinTech's disruptive potential lies in its ability to address pain points that have long been associated with traditional banking. The efficiency, accessibility, and cost-effectiveness of FinTech solutions are challenging the status quo.
What is the main driver for fintech as a disruptor? ›
According to a recent report from EY, consumers are attracted to FinTech by the more attractive rates they provide compared to traditional lenders. The ease of access to different products and services and a better online experience were further drivers.
The fintech revolution has provoked important changes among banks. They have responded to the emergence of peer-to-peer lenders and fintech rivals by adopting digital innovations such as smart chips, biometric sensors, branchless banking, artificial intelligence and machine learning to protect against fraud.
Which fintech has disrupted the banking space? ›
Startups and Incumbents Both Disrupted
Both were able to drive and adapt to changing technology in the consumer banking space. Neobanks like Chime, SoFi and Varo found success providing “new front doors” for consumers — between them, the three companies' apps were downloaded over 8 million times in 2023 alone.
What is the biggest fintech company in the world? ›
Why is fintech declining? ›
A combination of global challenges, including high interest rates and persistent inflation in various regions, as well as conflicts in Ukraine and the Middle East, coupled with declining valuations and a subdued exit landscape, led to a growing sense of caution among fintech investors.
What is the most disruptive fintech? ›
Coinbase. Perhaps the greatest example of fintech's disruptive capabilities, cryptocurrency, has changed the way the world views finance by splitting off currency from the influence of banks and governments.
How is fintech changing banking? ›
Fintech is bringing about change by making it easier for underbanked and unbanked populations to obtain financial services. Access is being democratized through fintech at a level that has yet to be seen through traditional banking methods.
How has technology affected the banking industry? ›
(2)Banking process is faster than before and more reliable. Maintenance and retrieval of documents and records have become much faster and easier. (3) Computerized banking also improves the core banking system. With a core banking system, all branches have access to common centralized data and are interconnected.
What is fintech and how does it affect the traditional banking activities? ›
At its core, fintech is utilized to help companies, business owners, and consumers better manage their financial operations, processes, and lives. It is composed of specialized software and algorithms that are used on computers and smartphones. Fintech, the word, is a shortened combination of “financial technology.”
