What is Fintech?
I attended the Chamber of Thrift Banks convention in Makati last month and the theme was "Banking on Disruptive Technologies." It was an update on the relevance and impact of financial technologies (Fintech) on the thrift banks in the Philippines. BSP Governor Espenilla was the keynote speaker and, together with the other speakers, was of the opinion that the existing and coming Fintechs will make the banks more efficient, effective and competitive. In last week's Asian Development Bank annual meeting attended by the top bankers in the Asia Pacific region, there was also a session on Fintech. It alleged that Fintech is good for banking and will improve financial inclusion in the country where 80 percent of the people do not have bank accounts. More Filipinos have cellphones than bank accounts. Are their assertions valid? What really is Fintech?
Fintech in early 2000 was a term applied to technology used by banks for their back-end consumer and trade financial transactions. These were software that improve bookkeeping, recording, reporting, and evaluating transactions. Since 2010, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, investments and even blockchain cryptocurrencies. Cashless payment systems, mobile stock trading, peer-to-peer lending sites, predictive behavior analytics, cyber credit scoring, and data-driven marketing are examples of new developments in Fintech. It was not surprising that in 2016 Fintech startups were able to raise $18 billion in equity investments as the trend towards mobile banking, distributed access, and more data analytics boomed.
In more developed economies in Europe, the US, and more progressive cities like Singapore, Shanghai, and Hong Kong, internet banking, cashless payment systems, paperless banking (including cardless ATMs) are already prevalent. In the Philippines, tech-savvy metropolitan residents can already do all of the above including borrowing through your cellphone or crowdfunding. I was able to get a loan approval through my cellphone within two hours, and I have done away my half of the bank statements that I get every month. I have a relative in the US who maintains his accounts in a virtual bank. The bank does not have an actual building but has an office full of computers in the 20th floor of a New York building, but he can issue checks, get cash at any ATM, and send and receive payments from anywhere in the world.
In the thrift banks convention, the two presentations that were interesting was the Cloud-based core banking system and the data analytics for credit scoring. The Cloud-based system would do away with the expensive core banking software, as we can just download from the "Cloud" the software to run your customers deposit and loan accounts, and even your general accounting system. Due to the inherent security risk of a totally Cloud-based system, a hybrid system was also presented where you can select which applications you want to download from the Cloud. The data analytics for credit scoring will eventually be very useful once credit information from all financial institutions are integrated and accessible.
Philippine Banks are just slightly behind the curve in Fintech developments, and this is just as well because recent reports of cyberhacking are on the rise. The banks will never divulge the amount of losses that are due to computer security breaches but it runs to billions of dollars worldwide. In BSP Deputy Governor Yuvienco's speech in the ADB conference, she acknowledged the increasing sophistication of the hackers and the need for cyber security experts to be in step or ahead of the threats.
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