The Rise of FinTech
Fintech has become a major buzzword in the financial services world. In the decade that has passed since the global financial crisis, financial technology startups have made huge waves in gaining market share. Born out of a reaction to the stranglehold which traditional financial institutions had on the sector and propelled through relentless technological innovations, Fintech firms have become more popular, more diverse and more ambitious. The explosion in Fintech firms over recent years has changed the financial landscape in a way not seen since the proliferation of the internet during the dot-com era forced financial institutions to make sweeping changes.
While the majority of successes for Fintech firms have been confined to the consumer and small-business banking space, some firms have now started to make inroads into the notoriously guarded corporate banking field.
FinTech Gaining Ground in Consumer Banking
The success stories in the consumer and small-business banking space are plentiful. Here Fintech firms have been using advanced software solutions to attract customers away from traditional financial institutions. The best example of this is the rise of mobile/online banks. Moving away from the traditional branch-deposit banking approach, these companies offer rival banking solutions to customers, providing intuitive technology and flexible services which many customers have begun to prefer over the more rigid term and limited services offered by traditional banks.
These banks effectively operate in the digital space only. Consumers can transfer money from their existing accounts, or make an initial deposit via a bank/post-office, but from there the money is accessed via apps and debit/credit cards, without the need for branch interaction. Many of these firms offer much better interest rates and much more flexible services with apps allowing customers to interact with their accounts at all times.
The pressure to respond to the popularity of these services has been clear, with all major banks now offering their own apps, giving consumers much more control over their accounts. This is just one example of how traditional financial institutions are having to keep up with the technological advantages of FinTech firms.
Difficulties For Fintech Breaking Into Corporate Banking
As for breaking into the world of corporate banking, however, the path has not been so smooth. Away from retail banking and, for the most part, small-business banking where clients are more prone to switching provider in a bid to secure the best conditions.
In the world of corporate banking, client/provider contracts are typically relationship-based. Corporates work intimately with a provider over a number of years so that the provider is able to tailor its services to cater specifically to the needs of the client. Given the time and money this takes, switching provider is not as easy as a decision as simply being drawn to innovative new technology which many corporates are eager to write off as gimmicky.
Trust is another big issue which poses an obstacle to FinTech firms attempting to break into the corporate space. Given the bureaucracy and regulation involved in corporate banking, firms require a much greater degree of confidence in a provider before they become attractive. The scale is also a key concern with many corporates still unsure whether FinTech firms would be able to handle the volume of transactions needed on a daily/weekly basis.
Unlike the world of consumer banking, and the majority of small-business banking, the decision to move away from traditional financial services firms and into newer FinTech startups will not be as smooth.
There are areas, however, where Fintech firms are starting to penetrate corporate banking. Many corporates are becoming increasingly aware of the advantages that Fintech firms can offer in helping them take better control of their transactions. Where Foreign exchange transactions are required, there are many variables to consider and traditional financial institutions are notoriously known for not being the most forthright with all available information.
How Just’s Strategy Is Making Waves With Corporate
Within this space, Just has made significant inroads into the corporate treasury space, offering corporates the ability to greatly enhance their transaction cost analysis. Just aggregates data from 20 banks, ECNs and brokers to give real-time and historic market data. The rate FX providers quote does not reflect the real market rate that banks trade at—markup is applied before you get your quote. Just, you can access pre-markup rates.
Access to pre-markup rates represents a big advantage for corporates, allowing them much better insight into the true value of their existing providers and essentially gives them leverage to negotiate better rates.
Just has partnered with academics and FX specialists to develop a robust Transaction Cost Analysis (TCA) methodology that accurately uncovers trade costs and margins. Upload your trade receipts, and you'll get a complete overview of your FX costs.
One example of the intuitive technology for which Fintech is being celebrated is the Live FX Benchmarking tool by Just This tool allows you to easily live benchmark quotes from your FX provider against real-time market data. You can use this to ensure your FX providers stick to the agreed terms.
As more fintech firms begin to penetrate the corporate space through these gateway areas, the future of corporate banking looks set to shift, fortunately, for the benefit of corporates.