Banks and FinTech companies; integration and cooperation, not competition

Today, we live in a world of rapid technological development, thanks to decades of investment in the IT sectors, especially in electronic communications networks worldwide. It is, therefore, self-evident that this sector controls the details of our daily lives. We are not just talking about the local or regional market but the entire global market. In this age of speed, consumers now expect services, all services, to be readily available. This applies directly to the financial services and transactions provided by various financial and banking institutions to their clients worldwide. Hence, the importance of cooperation and coordination between all components of the financial and IT sectors became evident to provide modern platforms, channels, products and banking tools for consumers and to governments and states alike.

It makes sense for FinTech companies to provide technology and technical expertise and for banks and financial institutions to provide financial and banking expertise and funds to the different sectors of economy.

In today's world, financial institutions need not be bound by physical infrastructure and related public expenditures. For example, companies can take advantage of the burst status of available data, and benefit from advances in computing power, via cloud computing, analytical tools and modern machine learning tools, to understand that data. We note that the global banking industry is adapting to this world, and at the same time conventional banking models face significant challenges. Here lies the importance of speed in adaptation and change.

Modern financial technology can now support access to credit through innovative approaches to data collection and analysis. Historically, a client seeking a loan has provided its financial statements to a bank or other conventional lender, but for the time being the use of a financial technology platform may allow the lender to monitor and analyse more up-to-date customer data from a wider range of sources, including those located outside the traditional lending process, to verify the applicant's identity and make inferences about the applicant's overall financial health. For example, it is now possible for a commercial loan applicant to provide information, such as shipping data or customer reviews as an additional contribution to traditional data sources. With this additional information, the bank will have a more complete picture of the applicant's daily activity and overall financial capacity, and there may be a greater ability to extend credit to customers, including some who may have been refused by the bank for a loan based on traditional data.

FinTech companies will also find ways to use bank data, and in some cases without a clear partnership with the bank. With the permission of customers, FinTech companies will increasingly become a “data collector” by scraping information on the mobile screen related to financial accounts. In such cases, the Data Collector collects and stores online banking login and passwords provided by the Bank's customers and used to log in directly to the customer's bank account. This information can be used to provide consumers with timely and appropriate financial information across a number of banks and multiple accounts in one or more countries.

There is no doubt that these examples highlight a balance that needs to be achieved in this innovative environment. On the one hand, new technologies have enabled banks and other companies to find different ways to meet consumer demands quickly and appropriately. On the other hand, these technologies themselves raise new considerations about data security and integrity, as well as consumer privacy and protection. Policymakers and the financial industry must, therefore, emphasise that enhancing convenience and speed in financial services does not undermine their safety, security and reliability. This is a task for the regulators in the countries, especially the central banks.

In Jordan, the Central Bank's efforts focused on two main dimensions: Strengthening prudent financial inclusion and strengthening the legislative system of the financial system. The Central Bank of Jordan has also initiated the process of developing and restructuring the payment and settlement systems in the Kingdom in partnership with banks operating in Jordan and related partners. This process aims to maintain the integrity and efficiency of the national payment system through interoperability of payment systems and the development of comprehensive legal frameworks to enhance financial inclusion, encourage increased acceptance of modern payment instruments, reduce systemic and credit risks and facilitate the money cycle in the economy to enhance economic efficiency. The central bank has taken the lead in this process, supported by commercial banks represented by the National Payments Board.

What I would like to end with is that although there is little room for competition between financial and banking institutions and financial technology companies, the best win-win deal between both players is cooperation, coordination and integration in their business to serve the customer, consumer and the economy in general. This is doable in light of the support provided by local government and global initiatives. Technology, smart phone penetration and growth in digital transformation initiatives will all be a win-win in this balanced equation.

The writer is director general of the Association of Banks in Jordan. He contributed this article to The Jordan Times