Fintech companies have, for a long time, claimed not to be financial institutions. But as time progresses, those claims have begun to hold less and less validity.
Indeed, the line between handy money apps and fully-fledged financial institutions seems to get blurrier with every day that passes.
We caught up with Guy El Khoury, the CEO of Accomplish Financial, to talk about fintech and the future of finance.
How Fintech Companies Have Influenced the Financial Services Sector
Fintech companies are generally more agile and innovative than traditional banks. This is reflected in the level of service they provide, in addition to the rates they charge customers.
Traditionally, banks have been required to provide their customers with comprehensive solutions covering everything from deposits to money transfers, loans, mortgages and even investment advice. However, this has directly impacted their ability to provide customizable products, instead opting for a more rigid “one size fits all” service so as to be able to cover a larger share of the market more efficiently, according to Guy El Khoury.
In contrast, fintech companies favour the route of specializing in solving one specific problem at a time, in a financial services-related vertical. Once they have achieved their goal, they then use their success as leverage to enter a new vertical. If they are able to successfully repeat this process enough times, they would soon find themselves in a position be able to compete on all fronts.
The result?
Not only are fintech companies able to provide similar verticals of services that banks offer, they are also able to customize experiences in ways that many traditional banks are unable to and furthermore can usually do so at a much lower cost and at a much faster pace. That, in turn, allows the fintech companies to scale their businesses at a greater speed.
Guy El Khoury does stress, however, that fintechs who claim they will be able to challenge banks and replace them outright without becoming a bank themselves either do not understand their industry or are dreaming and need to wake up to reality. Fintech businesses cannot currently exist without the services that traditional banks offer. Conversely, banks have begun to see how their services can be improved upon and expanded, and perhaps in that sense, are being ‘challenged’. Banks are still very much the foundation and backbone on which any fintech wishing to interact with the real world needs to have a symbiotic relationship with. In a way, fintechs augment the experience that is built on a banking foundation.
image via Unsplash
What Drives Innovation in Finance?
The short answer? Consumers. The problems that consumers of financial tools face are what drives the need for better solutions, Guy El Khoury says.
Banks, due to the range of their services, have larger overheads and as a result have to charge their customers fees for using their services. With a growing movement towards negative interest rates, reduced income from interchange, and increased competition, more cost is being transferred to the consumer. This will keep continuing unless innovation and efficiencies come into play; and this is exactly what successful fintechs are achieving.
The technological advancement in other industries is another contributing factor.
Emerging technologies such as AI, cloud computing, blockchain, and IoT have opened up the doors for new services that fintech companies can offer their customers. Held back again by the scale and breadth of their existing services, traditional banks are slow in the uptake here due to the sheer complexity of needing to upgrade their systems which can be fragmented, legacy systems and in the dozens ranging to hundreds of systems for the largest players. Planning upgrades, amending processes, and rolling out new solutions takes years, according to Guy El Khoury. Rather than being first movers, they generally rely on fintech companies to create solutions, which they can then add on to their existing systems and enhance their offerings with.
The Concept of Money Is Changing… And Fast
We live in an increasingly cashless society. Not only have payment cards and payment apps largely replaced physical money, but the emergence of cashless or “electronic payments preferred“ businesses also contributes to the way we think about money.
Guy El Khoury already saw the writing on the wall years ago.
His company, Accomplish Financial, covers a wide range of payment instruments and accounts including but not limited to traditional plastic payment cards, wearables, virtual, QR, and tokenized cards and accounts. He understands that cards, in the physical form, will eventually be phased out in favour of payment instruments more suited for the evolving digital world, but that they are not disappearing anytime soon. Accomplish Financial from its onset has designed its systems to have the account holders at the core and to allow connectivity of any payment instrument.
Indeed, the concept of money is changing… and fast.
Companies such as Amazon are already combining online and retail shopping. In the future, you will have the ability to walk into a physical store, pick up the items you need, and get automatically charged on your way out.
Other services such as PayPal are changing the way we sell unused goods or split the bill with friends on a night out. Rather than fumbling for the correct change, Guy El Khoury says, all you have to do is tap a button on your smartphone — and you’re done.
Even Central Banks have had to begin considering how their national currencies will be affected with the emergence of digital and crypto currencies as they begin to gain popularity.
Cryptocurrencies can, in theory, offer much of the same convenience and speed as other digital cash apps. And while it’s far from mainstream, more businesses have started accepting cryptocurrency payments for their goods and services. Blockchain technology could also be leveraged to offer a whole new level of transparency, although Guy El Khoury hastens to add that a lot more regulation and guidance is still required in this relatively young sector.
New Markets Are Opening Up
Large populations of the world still belong in the “unbanked” category of potential customers. Traditional banks have not shown interest in this segment due to the sheer investment it would take on their part, the high cost of customer acquisition and low deposit perception.
However, fintech companies are more than happy to claim that slice of the pie for themselves.
As the smartphone is no longer a luxury and is essentially ubiquitous, fintechs do not need large amounts of staff or even a physical presence to operate in rapid growth and developing countries says Guy El Khoury. All they need is for their potential customers to have Internet access on their device. With this type of basic infrastructure already in place, fintech companies face significantly less barriers to entry in markets eager to adopt new technologies that fit their needs, in contrast to developed markets where there can be pushback to keep older ways of interacting and making payments. The comfort that comes with existing habits and rapidly obsolescing methodologies is actually a hindrance to progress.
The ability to leapfrog to the latest technology is one that legacy infrastructure is not able to accommodate as easily. New technology runs significantly more efficiently thereby reducing costs, and solutions based on these technologies have far more capabilities for far cheaper costs. It’s one of the reasons why economies like China and India grow so much faster than Western economies.
Regulation Is Crucial
The sheer speed with which fintech companies have grown and asserted dominance in innovation is only possible within an environment open to progress.
Regulation is extremely important and maintaining the fine line between innovation and consumer protection is a difficult one to manage, however, Guy El Khoury insists, that the UK is still at the forefront. He adds that the FCA is amongst the best in the world and definitely a leading regulator that many other regulators look to take guidance from.
As fintechs are susceptible to all the same threats facing banks, such as cyber-attacks and fraud, there have been great strides taken to ensure that fintechs adhere to information security standards and implement processes commensurate to the importance of the services they provide and to the standards being followed in banking.
Regulatory technology, or regtech, as it’s abbreviated, has advanced immensely in recent years and it’s one area where progress has greatly aided fintechs in their growth. Guy El Khoury believes that it’s greatly welcome and that fintechs should keep up to speed with development in this space and work closely with regtechs to bring to the market better solutions for consumers.
What’s Next for Guy El Khoury and Accomplish?
Accomplish is well on its path to deliver the best in Issuing Solutions and would like to ensure that it always has the most comprehensive products in the market for its clients. Key partnerships with established schemes such as Mastercard will evolve to incorporate new trends and products that are offered to financial institutions, programme managers and brand owners enabling them to have access to an entire suite of tools that facilitate going from concept to execution at lighting speed.
The future of fintech innovation looks bright despite the current global climate, and every day there are exciting new ideas and challenges that accompany them, he says, and we very much still want to be part of this wave of innovation.
Featured image credit: Photo by Clay Banks on Unsplash
