By Cindy Taylor/Publisher
We've always said that the term "fintech" is a bit of misnomer, because the trading markets were the original fintech, and to this day, continue to offer the most advanced financial technology in the world. That said, the category has mushroomed into a myriad of offshoots - trading apps, digital banks, P2P lending, crowdfunding, digital currencies, token offerings, and on and on and on.
With the explosion in the technology comes fintech study programs the world over, and to that end, I was recently contacted by a young French student, studying for a fintech master's degree in Singapore, named David Piechon. His area of emphasis is forex, and he asked me the following questions below for his graduate thesis. Here's my take on the future of forex-focused fintechs. Enjoy!
You can find the 10 questions below. As possible, take into consideration the FinTech which are specialized in the FX market and currency changer overseas.
1) For you, what are FinTechs bringing that conventional banks cannot do, or do not want to do?
CT - In my opinion, fintechs - at least those that are app-based as opposed to those who provide back-end services to banks - do a much better job of targeting the under-banked and millennials. They also offer a much cleaner mobile user experience than most banks have offered, at least to date. Many - such as my favorite fintech Revolut - also offer a myriad of other services - such as buying and selling cryptocurrencies, and selling micro-insurance policies, that traditional banks will not - or cannot - offer because of country-specific regulations.
2) Why would it be more convenient or cheaper to use FinTech Services over traditional banks to change a currency to another? Or not, and why?
CT - The answer is pretty straightforward. Fintechs simply have much lower out of pocket costs for doing businesses than legacy banks, many of which have dozens, if not hundreds or thousands of branches to pay for - along with the employees who must man those branches. So their cost structure is much cheaper.
3) What are the impacts on the banking industry brought by the emergence of so many FinTech start-ups?
CT - We are really in our infancy with regard to that question, but as time progresses, you will see many legacy banks either folding or changing their business model entirely. In the near term, though, it is forcing legacy banks to be more customer centric in person, and that is a positive. For instance, I am a boomer, and I have found that my experience banking with Wells Fargo, despite all their highly publicized customer misdeeds, has been incredibly positive in person.
4) What are the opportunities, challenges and risks brought by these Start-ups?
CT - The opportunities for growth are enormous, though there is keen competition from hundreds of other banking and finance apps and startups. Challenges are standing out and getting millennials to have brand loyalty and use their apps - not an easy task. Risks? Going out of business and leaving their investors and customers in the lurch.
5) What could be the solutions the banking industry must find to survive & compete against these FinTech companies?
CT - The best solutions are either developing similar apps, partnering with new fintechs, or buying them outright. All three are currently occurring in the marketplace.
6) What would be the advantages of using Neo-banks such as N26 or Revolut instead of the traditional commercial banks?
CT - For one thing, they're just SO fun to use on a mobile device. I referenced Revolut above - I love love love that company! And they have so many services that traditional banks don't offer. I also like how they handle customer service socially - and transparently. I have not seen anything like that from traditional banks - at least not here in the US.
7) What would be the advantages to use Tranferwise or FinTech companies specialized in FX services instead of traditional commercial banks?
CT - Cost cost cost! They are SO much cheaper to use for forex and money transfers. The currency conversion rates these firms offer is much more advantageous to the customer.
8) How do you see the FX environment on a short-term/long-term position?
CT - The forex market is well positioned to continue to grow as the world gets smaller. The challenge will be in managing regulations from country to country and managing the KYC (know your customer) details that are so crucial to preventing these fintech apps from being used for illegal purposes or money laundering.
9) Would you consider FinTech companies specialized in FX services as a competitor for commercial bank/money changer? If Yes/No, why?
CT - Absolutely. They are competing for customers on a service offered by traditional legacy banks, so they are absolutely a competitor and have the advantage, long term (not short term), if they have a good user experience in place for mobile devices and fair pricing. The millennial market and the under-banked are what will give them the long term advantage.
10) In your opinion, why are more companies (SME or Major companies) or individuals not using FinTech services to invests, purchase and change money overseas?
CT - I don't know those statistics, but the only reason I can think is because they want to make sure they are within their country's banking regulations. They may also fear cybersecurity issues with fintechs, and that is a legitimate concern.
Special question: What advice could you give me to answer in the best way to my problematic/research question or to complete my development?
My best advice is to download as many apps as you can that are in the market you want to cover and to use them - even with just a little money in each - and then compare the pricing structure, user experience (UX), etc. I would also ask your millennial peers for their assessment as well, even if they are not professionals in forex or finance.