What now for the global finance industry?

By Brian Brodie, Group Chief Executive at Freedom Finance with 37 years of experience in the personal finance industry.

With financial markets in a state of flux and whole countries under lockdown, it is at this point unclear how the FinTech industry and global financial landscape will look after the pandemic.

Over the past few years, FinTechs have moved out of specific use cases and have begun to operate at scale. Where they once catered only to particular demographics, the sector is now providing services across the whole financial services playing field.

Despite the ongoing uncertainty caused by the global pandemic, the sector is experiencing an increase in demand for digital banking software which could provide a necessary boost to FinTechs at a time when other funding may not be available. Many governments across the world are also trying to mitigate the impact of Covid-19 by encouraging more partnerships between traditional banks and FinTechs, most of which tend to be uninhibited by traditional operations and processes – making them more efficient than their counterparts.

Brian Brodie

The fact that many FinTechs are digital only platforms drives speed of adoption and the ability to expand into new geographical markets quickly. Revolut is just one company that has capitalised on this and leveraged these advantages to great effect, having this year expanded into all the EEA countries, Switzerland, Canada, Singapore, the US and Australia. It will be interesting to see how the bigger, rapidly growing players respond to the current global economic situation.

Partnerships between banks and FinTechs are by no means a radical concept. Increasingly, traditional banks have looked to mimic the formulas used by the FinTechs – but as adjacencies to their core business, rather than reforming their legacy brand propositions; for example, Bo, RBS’s challenger bank brand. And take for instance, Freedom Finance’s recent partnership with The Co-operative Bank which, using our technology, allows the bank to offer tailored lending options to a broader market.

It is likely that as the markets recover from the current pandemic, we will see more partnerships develop. For the FinTechs, partnering presents an opportunity to plug into incumbents and build new services that are useful for a wider range of customers, and by harnessing talent which isn’t on their payroll, traditional banks can utilise and onboard technologies that would otherwise take many months to develop.

Over the years, we have seen many of our customers start their journey having already been declined by a bank, but then go on to secure a loan that’s affordable and right for them – simply because the bank wasn’t able to accurately interpret their capacity to borrow. These customers tend to fall into some pretty well-defined segments: the young, those establishing themselves in the UK, the self-employed and people recovering from financial instability after an event or income shock. While traditional banking decision systems have historically been large enough to securely process millions of transactions, they can be rather ‘one size fits all’ and turn away customers who do not meet their stringent criteria.

Many FinTech companies, on the other hand, concentrate on small improvements that, over the long-term, can drive industry wide changes such as solutions for customers unable to get loans with no or poor credit scores. Therefore, these partnerships have a huge value as they allow incumbents to potentially service more customers and give them greater ability to understand and personalise their proposition – leading to fewer abrupt endings for perennially underserved groups.

At present, FinTechs and banks alike, are having to reassess their growth expectations and rethink their plans in order to react to the existential threat caused by the global pandemic. Much of the industry is ‘firefighting’. The immediate priority is survival and ensuring customers are cushioned somewhat from the impact, whether that’s through credit relief or deferment plans. It is, therefore, more important than ever that finance providers adopt the right blend of technology and human support to help make customer’s important financial decisions during this time easier and clearer.

Coronavirus and the disruption it has caused will undoubtedly have serious implications for the financial services industry. However, as the sector recovers there will be many opportunities, and it’s likely that we will see strategic partnerships become much more commonplace as a result.