KUALA LUMPUR: The banking landscape is set to undergo massive changes as disruptive technology, introduced by fintech companies, challenges the industry’s traditional practices.
“The digital economy is taking over and by and large, it will pose a threat or an opportunity depending on the ability to embrace this change,” said World Bank Group director Sebastian Molineus.
He said some financial institutions are getting ready to embrace these changes, setting up innovation labs within their organisation to create an environment of innovation and changes.
“New products are currently being developed and rolled out,” said Molineus, who oversees World Bank’s finance and markets global practice.
“You can also see some financial institutions that are purchasing or acquiring young startups or fintech companies, to acquire the technology. There are some financial institutions that are sticking to their guns and keeping to their traditional models,” he told Business Times in an interview on the sidelines of the Innovative Financial Inclusion Global Symposium, here, on Wednesday.
Fintech companies already in operation offer a variety of innovative solutions to financial services.
London-based TransferWise, for example, has come up with a peer-to-peer money transfer service that allows users to transfer money across different borders and currencies at lower costs than traditional banks.
WorldRemit, another British company, allows users to send money via an app to people around the world to bank accounts or so-called mobile wallets for a low price. Normally, this process can take several days and cost a lot.
Flint is a mobile payment app that doesn’t require a special reader for businesses to accept payments. Instead, it uses a smartphone’s camera to scan the purchaser’s credit card number. By using that along with the customer’s signature, payments can then be processed. Once the transaction has been completed, a receipt will be sent to the consumer.
Molineus said over time, traditional banks will be challenged by new technologies but their services and products will still be relevant and needed in the coming years.
“I think we will always require financial institutions, and I do think there will always be a role for traditional banking, but (the impact of technology) will be more so on the products that are being offered to consumers and the means by which the products are delivered.
“At the end of the day, it is the same product but the means by which you do this, has completely been revolutionalised, resulting in cheaper prices and more efficiency,” he added.
Molineus said the financial industry cannot remain static and must change to remain relevant and keep pace with the times.
“The digital economy is offering a huge opportunity and it makes business sense for banks to be able to expand their customer base in a cost-efficient and profitable manner, creating a win-win situation for development and the financial industry as well.
“We are in the midst of this change. The question is how far will it go, where are we on the curve and how steep that curve is going to be,” he added.
Meanwhile, World Bank financial infrastructure and access practice manager Douglas Pearce said the competition and disruption that fintech companies bring can be strongly positive to the traditional banks in improving consumer services and product design, and reaching difficult-to-reach market segments.
“From a regulatory perspective, the priority is maintaining a stable financial sector, alongside financial inclusion. That is what regulators and policymakers have to balance.
“Banks do have developed infrastructure, systems, licensing framework and consumer deposits. So, banks clearly have a central role to play in expanding financial services using technology.
“For regulators, the challenge is to maintain an open and level playing field, and develop their own supervisory capacity fast enough that they can understand the new technologies, enable and unleash them, but in a way that is beneficial to the economy and individuals,” said Pearce.
The two-day symposium, themed “Harnessing Innovation for Inclusive Finance”, was co-organised by the World Bank and Bank Negara Malaysia.
The World Bank said there are as many as two billion adults who are financially excluded and extending access to financial services for this group is critical to reduce global poverty and achieve inclusive economic growth.
Financially-included individuals and firms can smoothen their cash flows, meet unexpected expenditures or losses in income, or invest in their skills, health, assets, or new business.
The World Bank has also issued a call to action to achieve Universal Financial Access by 2020, which means that basic access to the formal financial system — for example, through debit cards or mobile money — should be possible for everyone.
The World Bank, headquartered in Washington DC, is a vital source of financial and technical assistance to developing countries. It has set two goals for the world to achieve by 2030 — end extreme poverty by decreasing the percentage of people living on less than US$1.90 (RM7.81) a day to no more than three per cent and promote shared prosperity by fostering the income growth of the bottom 40 per cent for every country.
Established in 1944, it has more than 10,000 employees in more than 120 offices worldwide.