Fintech and Financial Institutions

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By Maimun Mustafa

Bridging the Innovation Gap

FinTech is the principal buzzword in the world of contemporary business. Its origins, growth and the potential to bridge communications, technological and finance have led to renowned interest in collaborations between Fintech startups, technology companies, and traditional financial institutions.

Many have a misconception that Fintech is a 21st-century creation. However, the invention of record keeping system building of government finances and taxes in the form of coins and paper was the real foundation of this technology. This form of money was in itself the ‘technology’ to handle the ideas of finance i.e. Fintech.
Subsequently, the ancestors of modern Fintech were born 150 years ago in the year 1867 through the creation of the first transatlantic cable. This base of financial technology, media, and communication was established by connecting London with New York and Paris and eventually decades later with Shanghai and Hong Kong. Financial and economic globalization was enabled through these cable lines. It is no wonder that in the past 5 years more undersea cables have been constructed than in the last 150 years. This highlights the greater data flows that are being demanded especially in light of data becoming inextricably linked with finance and communication.

In the 2014 biopic Benedict Cumberbatch’s titular character Alan Turing, who is the father of modern computing, developed a system for securely communicating data and breaking codes resulting in the development of modern computer technology and artificial intelligence. The fruit of Turing’s labor, the Imitation Game or Turing Test became the primary test to judge for AI capabilities. It questions whether a computer can act natural so as to pass for a human (i.e. imitate a human being). AI focus is said to reduce the mental burden on human beings just as the first Industrial Revolution reduced mankind’s physical burden. Thus with such purposes, modern AI paved its way into Fintech as well as RegTech with the aim of easing financial management.

Initially, as technology evolved banks were very good at keeping up. However, during the 2008 Global Financial Crisis they were required to focus on regulatory reforms and the innovation was sidetracked. In addition this period saw the surge in social communication technologies. Essentially a gap was created from what consumers came to expect in light of the availability of the smartphone era and what banks actually provided to them. This was an opportunity that Fintech startups immediately capitalized on. Also technology companies like Amazon, Apple and Google merged Fintech into their portfolios leading to not only direct financial services but also breakthroughs like Apple Pay and Google Pay. Furthermore, startups, technology firms, and banks all ended up competing against each other for a slice of the pie resulting in the TechFin industry growing.

Over the years especially in B2B regions like Hong Kong and Singapore a realization dawned that collaboration is what the Fintech industry needed. Banks’ understood that they need to be agile in a dynamic market given their slow transformation time. Fintech startups accepted that alone they lacked capital for larger creation and growth. Therefore the present industry trends see banks collaborating with or acquiring Fintechs through strategic investments. Fintechs solve the banks’ need for strategy as well as cross-regional collaboration through a global solution. They also assist financial institutions in reducing compliance time and respective onboarding. The consensus now is that banking will not change by disruption but through strategic partnerships.

The country has observed slight progress in Fintech with the advent of mobile money by bKash, DBBL, and Ucash. Additionally, chatbots have been introduced by 2 of the leading private banks for technological advancement. EBL Dia has received positive feedback as it provides banking through social media platforms like Facebook and Viber. EBL envisions to introduce machine learning capabilities to enhance the prescribed responses by Dia. EBL when contacted, noted that it will strive to add more technologically advanced and convenient customer-oriented services. Also, some of the local banks have come to understand the requirement for collaboration as they partnered with mobile wallets like bKash due to the market demand. The SuperApp Services like Uber, Obhai, and Pathao are also vying for the mobile wallet clientele as they diversify their services for the 160 million markets.

As Fintech solution develops so do the needs for its security. Blockchain technologies to augment AI, as well as cryptocurrencies, may be foreseeable solutions. Biometric solutions complemented with AI recognition can add to bank security to compliment digitized transactions.

While the global community advances towards the adoption of multi-currency cards, personalized banking predictions, and artificially intelligent credit ratings, Bangladeshis are still reluctant to put faith in receiving digital payments. With the 4th Industrial Revolution in the horizon, one can only hope we can pass the Turing Test to work with an artificially intelligent banking system in a cashless society.

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