Promoth Manghat :
Fintech revolution is not a new phenomenon. From the days of the Pantelegraph of Giovani Caselli in 1865, which was used to verify signatures in banking transactions between Paris and Lyon, to the introduction of ATMs, or the ‘robot cashier’ in 1967, to cards, and the era of online and mobile money transfer, we have been living through the evolution of financial technology and its innovations.
The money transfer industry is no stranger to evolution of technology. Advancements in fintech innovations, particularly the advent of alternate remittance channels, nudged incumbents to quicken their pace of change. However, I believe the industry is still at a nascent stage in its digital journey considering the changes in mindset and operational evolution that we need to go through to harness its full potential. We have become scrupulously focused on fintech initiatives, which calls for reengineering of traditional business models.
In many cases, regulators are yet to get to speed with the fintech movement, with many of its existing regulations being archaic in the context of online and mobile channels. However, there are good tidings, particularly, if we look at the UAE.
The UAE government stresses on innovation, and through its regulatory arm, the Central Bank of the UAE, it has defined a framework for digital payments. Similarly, regulatory authorities of other countries such as the Central Bank of Bahrain, Monetary Authority of Singapore, Financial Conduct Authority, UK, Reserve Bank of India, etc., are also leading the digital path.
Now, if regulations don’t take shape and get to speed with the market, there is a possibility that the regional service providers will lose to global players. Currently, the rules cover largely the brick and mortar model. The regulations should be reassessed to cover the new business model, including the digital sphere.
Legacy players are realising the benefits of intuitive technology, and its ability to bring forth operational efficiencies and enhance user experience. The impact these technologies can have on lowering the cost of money transfers is an advantage.
This is not to say that legacy operators are without advantage. Startups in the money transfer space often face ‘last mile’ challenges to consummate cross border transactions. There is the issue of off-boarding local currency at the payout end of the transaction, wherein formal financial entities have to be relied upon. Similarly, acquiring a customer base remains a challenge for them since factors such as trust and loyalty are critical to the money transfer business.
While fintech players have their hurdles, incumbents have their own challenges that stifle their competitiveness in the fintech era. This is where the significance of collaboration lies. Established money transfer entities have significant partnerships with financial intermediaries, like correspondent banks, nurtured over the years. By partnering with existing players, startups in the money transfer space gain reach and reduce their time to market. Traditional players are also well versed in navigating complex compliance and regulatory requirements that could be daunting for startups.
For the traditional players, co-opting the new technology of startups could help them adapt well to the changing times and create more efficient and convenient digital channels that offer better customer experience.
The two together can also help advance financial inclusion. This is especially relevant in a context where formal financial institutions may be lukewarm to serving customers in the lower rung of the economic pyramid, citing it to be unfeasible in their larger business interests.
Traditional players are saddled with straitjackets of the system like exclusivity clauses in certain markets, the rising spectre of de-banking and increasing risk averseness. Fintech startups, on the other hand, have the ability to leverage technology in a cost efficient manner.
There is thus a strong case for collaboration between traditional players and the fintech community that will go a long way in serving mutual interests and improving customer experience, while furthering the cause of financial inclusion.
(The author is the CEO of UAE Exchange Group of Companies, which includes UAE Exchange Centre)
