By Nada AliRedha
How banks need to adapt to grow the economy.
Banks today face a challenge
While the security they provide is essential, the services they provide are quickly getting replaced by fintech
The ways in which banks can overcome these challenges are many, however as a base to be more client oriented rather than compliance oriented is key.
Anyone who has recently tried to open a bank account will tell you how difficult this task is.
Collaborating with fintechs is a better way to go and not see them as competition; for example combining the protection a bank gives with blockchain technology could be a winning product.
Fintechs can enable banks to move faster in the world of digitialistion and target a larger number of customers. Banks should not only partner with fintechs but invest in them as this can be their transition into the future
The issue with most digital banks & fintech apps is lack of human touch, banks can still provide a great customer service if they focus on those aspects of their offering. More products, better suited to growing startups and young businesses. I see this as a value banks can sprovide which may save them from loosing this race.
Upgrade lending criteria, is another area that can be improved- banks make money by lending, now more than ever banks are too focused on detecting fraud and verifying businesses.
With banks acting as regulators, their main priorities have become preventing and investigating fraud, rather than lending money. This has a negative knock-on effect when it comes to loan applications. Credit checks are necessary, they can often disqualify a large number of deserving businesses. The issue lies with the many applications that often fall at the hurdle that requires a stellar credit history and at least 3 years of financial statements in order to qualify. Needless to add, Start-ups & SMEs (Small to Medium Enterprises) cannot fulfil this criteria. While startups & SMEs are necessary for the growth of the economy
Banks must be open to connecting APIs, open banking concept- the idea of locked data is in the past. Businesses today want easy access; to receive payments, to verify clients, to connect to accounting software, to manage payroll.
Open banking allows direct, secure connections between merchants and customers’ bank accounts via open APIs, this makes doing business easier
It also allows creation and implementation of new products much faster.
Lowering transaction costs and increasing speed of transactions is a another very relevant point for banks to consider; the way this functions today is simply inefficient, especially international transactions.
While creditcard companies such as AMEX have opened B2B transactions for their clients through their AMEX cards, banks still take 3-5 business days for international transactions between businesses.
Decentralization is of importance, banks function as one head with many arms, while its probably smarter and more cost effective to have multiple heads running multiple functions with more focus. This is very obvious in todays credit swiss crisis, where a landmark bank in history is considering shrinking the business to its domestic market & focusing solely on wealth management.
While Banks have the added advantage of security & privacy, the services they provide need to be diversified and the delivery of those services need to be upgraded- whether banks will be able to make this change or not, and will it be fast enough, remains to be seen.
