WHETHER or not banks are ready, financial technology companies have swooped down on them, disrupting traditional banking services, especially in the payment space.

Fintech companies use technology to provide customers with financial services that range from payment transactions and loans to insurance and even asset management. Paypal, which operates a worldwide online payment system that supports money transfers over the internet, is an example of a fintech.

The threat seems imminent but bankers believe local fintech companies have not encroached on their core businesses yet. Still, instead of standing idly by, banks have taken steps to get a piece of the action too. Increasingly, they have been collaborating with fintech companies to provide services to their customers. The fact of the matter is that banks believe fintech companies cannot exist without them.

“They have to co-exist. Fintech companies can’t exist on their own. In some places, they could sort of do that through lending but that lending is quickly regulated. At the end of the day, we view fintech very differently. It is just a contraction of financial technology, right?” says Alliance Financial Group Bhd CEO Joel Kornreich.

“Financial technology has always existed. What has changed is that the ability to transmit information, share it and process it has grown substantially with the computing power of computers, mobiles, tablets and so on. It’s a lot cheaper and faster to be able to get information and process it.”

Malayan Banking Bhd president and group CEO Datuk Abdul Farid Alias adds that fintech companies are trying to redefine the banking experience but the successful ones can only do it in collaboration with banks. He also points out that fintech companies may even be complementary to banking services as they can provide funding to customer segments that banks may not want to be in, for example, equity crowdfunding or peer-to-peer lending platforms.

CIMB Group Holdings Bhd group CEO Tengku Datuk Seri Zafrul Tengku Abdul Aziz believes there could be a new trend in the banking space that would include more collaboration or even mergers and acquisitions between banks and fintech companies.

“As the competition in fintech heats up and the cash-burn continues, the balance of power may also shift with fintech companies aggressively seeking bank partners in the same way that banks are trying to court fintech companies now,” he says.

That said, the existence of fintech has made banks more efficient. AFG’s Kornreich points out that 80% to 95% of transactions these days are not done over the counter any more.

“The cost of doing a transaction over the bank counter and the efficiency of doing it are terrible. The cost is huge because now, not only are transactions over bank counters few and far between but you also need people to do them, people to verify them, somebody to manage the vault and all that. In addition, you have more regulatory requirements, especially when it comes to large cash transactions, reporting and documentation and so forth. But if you’re doing it electronically, a lot of information regarding the transaction is already available because we know who you are, when you’re doing it, where you’re doing it from and so on,” he explains.

The traditional way of banking will have to evolve, observes Kornreich. The current model of bank branches is not sustainable, he says, adding that they have to transform into places that customers go to for advice on sophisticated needs.

“So, the question is, how fast are you going up that chain? Whoever is faster going up the chain will protect themselves better against disruption.”

RHB Banking Group Bhd group managing director Datuk Khairussaleh Ramli observes that fintechs in Malaysia are in an early stage of maturity and building their solutions. “We have been working with some of them to mutually develop solutions that meet our customers’ needs. We do believe over time these fintechs will mature, and their solutions will challenge banks, especially in the areas of payments and wealth, hence chipping away at banks’ revenue and customer base.”

Nevertheless, he adds, there is one thing fintech companies have not been able to replicate so far — the trust consumers have in banks, which is where banks will continue to have the edge, given that they are licensed institutions and custodians of public funds.

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