Banks and Fintech on the Crossroads: Key Insights from Fintech Borderless
Fintech is one of the key drivers of today's banking industry. Debates about the relationship between startups and banks have been going on for a long time. Should they collaborate or compete? Can fintech projects replace traditional institutions – or will these two segments complement each other?
These and other issues – including digitization, financial trends, and crypto regulations – were the focus of attention at the international forum, Fintech Borderless: Eurasia Digital in Minsk. The event was attended by the leading executives of fintech companies, banks, PSPs, and state agencies.
Read on for the key findings about the current state of affairs in banking and payments.
You can't do without banks — yet
Why? Here are a few reasons:
In Belarus, fintech still hasn't evolved into a separate segment. In the absence of special regulatory norms, fintech companies are forced to follow the same rules as a classic payment system. Unfortunately, these rules are too stringent, and startups have a hard time adjusting.
Luckily, positive change is on the horizon. In the fall of 2019, the National Bank of Belarus began public discussions regarding the new payment services law. The document is designed to expand the range of the participants in the payment infrastructure, specify their rights, and regulate their activities.
Fintech projects are facing a weak and inefficient market. On the one hand, startups are able to offer valuable products and services. On the other hand, they can't monetize them due to the lack of regulation and small user base. Banks do have the client base, but the abundance of red tape doesn't allow them to implement new services fast enough. As a result, fintech projects still require the assistance of banks.
Fintech lacks a universal platform for taking products to the market. All the projects face the same final barrier – the need to use a payment system. Only new infrastructural solutions can help solve this problem – such as blockchain standardization and an instant payment network. However, this will take time.
Meanwhile, Russia and Belarus are lagging behind in terms of developing their digital economies. For instance, IT accounts for just 2.7% of Russian GDP – this is several times less than India.
Fintech as the driver of digitization
The ongoing digital transformation is painful for banks. For instance, digitization requires that companies cut unnecessary costs. Yet banks keep investing millions in real estate, ending up with luxurious, but underused and mostly empty office buildings.
New technology also requires a new kind of personnel. Banks are forced to either outsource many of their processes (and that means losing their market share) or hire lots of IT engineers. But even if banks expand their development teams, their extensive bureaucratic machines don't let them launch new products fast enough. In the past, taking a service to market in 9 to 12 months was considered a fine result, but nowadays one is supposed to prepare for launch in just a month or two. This is a major stop factor for banks with their convoluted approval algorithms.
Innovation in banking
Implementation of QR codes. In China, QR codes are ubiquitous – in stores, eateries, and in outdoor advertising. Even beggars use QR codes to collect alms.
In fall 2019, almost all major Russian banks joined the Fast Payment System. This will allow businesses to save on expensive acquiring services and POS machines. Instead, they will be able to accept QR payments: all that is needed from a customer is a smartphone with a QR scanner app.
The guests of Fintech Borderless discussed the prospects of implementing such payments in Belarus. Some bank representatives doubted that the technology really has a future in the country, since more innovative and convenient means of payment are now available, including Apple Pay and Samsung Pay.
A different point of view was proposed by Pavel Matusevich, deputy CEO and co-founder of 21vek.by. He pointed out that the industry should welcome any means of reducing transaction costs. In this sense, QR codes are a valuable element of the payment infrastructure. Instead of trying to monetize them directly, banks should look for new monetization techniques that can work as companions to QR codes.
Additionally, in November 2019 the retail chain Evroopt tested QR payments and now plans to introduce them across all its stores in January 2020. Statusbank customers will be the first to get access to the new means of payment.
Biometric authentication. Belarusian authorities are already working on a single biothmetic database. Soon, users will be able to access their internet banking accounts by providing their biometric data instead of a password. So far, the talk is only about authentication, not identification.
However, far from all the participants of the forum agreed that a biometric database will make users' lives better. Some see it as a tool of total control over the populace.
Ecosystems: pros and cons
An ecosystem is a sort of a showcase that brings together various digital products. It's designed to engage customers and become their constant companion and assistant. A good example is WeChat, where one can communicate, send money, shop and even order food.
In the West, there is already a core of major ecosystems – so-called BigTech - that impact the global market. They include Facebook, Amazon, Google, and Apple. Thanks to gigantic volumes of user data that they accumulate, these corporations are able to create services that correspond to their customers' needs and interests.
Can banks and fintech projects build their own ecosystems? The opinions were divided. Regulators and state-owned banks are skeptical about this prospect. By contrast, fintech projects are convinced that it's the ultimate way to become closer to the customer.
Panel discussions at Fintech Borderless demonstrated that the finance industry is still facing many unresolved challenges. However, the general outlook remains positive. Hopefully banking, fintech, and the state will find ways to not just compete or coexist, but to complement each other.
By 2025, the Eurasian Economic Union should have a single financial regulator – a development that is bound to benefit fintech. Companies that are licensed in one country of the Union will be able to operate other member states without an additional license.
Moreover, a new payment system is being developed for BRICS countries (Brazil, Russia, India, China, and South Africa), known as BRICS Pay. It will include an online wallet integrated with payment systems of all the member states. The wallet will allow users to pay for purchases in all BRICS countries regardless of their account's currency. This will reduce the dependency on traditional cross-border payment systems. Member states of the EEU and Shanghai Cooperation organization also plan to join the new unified payment space.