Financial Technology has established a world of start-ups that are built on the passion of tech and the financial savvy of wall street. So it’s no surprise that FinTech services have been exploding over the past five years to overshadow the traditional high street bank.
The modern FinTech industry is young and disruptive. Two of the oldest companies are only a mere ten years old, and the rate of investment is growing by 45 percent annually.
Compare this to high street banks which have seen slow innovation, and crippling reputational damage due to the financial crisis; and you can begin to understand why more businesses are starting to turn away from the high street and jump online.
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Where traditional financial institutions are failing, FinTech companies have been providing the solutions to consumer demands which have been ignored.
Better rates
As a global business transferring money through a bank could cost a fortune in hidden fees.
The standard money transfer charge from banks sits between 5-8 percent when sending money abroad. Whereas FinTech companies charge between 0.5 – 1 percent. This can equate to a £100 – £150 saving on a £5,000 international transfer.
These fees and charges can be crippling to a business looking to expand internationally, and it’s these financial restraints that are impacting a generation of global businesses.
In business your money is your lifeline, and if it’s not being protected, how can you trust that your money is working in the best way for your business?
FinTech companies have been battling the banks about rates since their conception, and it’s for this primary reason that businesses have begun turning to tech and online services to provide financial products.
More secure
Apps and mobile banking are now the biggest route for financial transactions. With more than 8 million people downloading banking apps in the past year, and £2.9bn being transferred through apps in 2015 alone.
53 percent of adults bank online, but each year 900,000 people are affected by bank fraud costing the UK up to £193bn per year. The biggest scams relating to business services.
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This year has been a particularly rough ride for banks, with a number of brands hitting the headlines for failing fraud checks which have identified the risks their customers face by using their services.
Fraud can destroy a business, leading them to incur large losses, which in some cases, cannot be resolved quickly.
FinTech companies are leading the way in online security because they are a tech company first, and a financial service second. Many of them have been born from previously successful tech start-ups that are aware of the way fraudsters work, and have built their own intuitive systems that can manage such attacks far better than the outdated systems of the banks.
Global ease
Businesses no longer look to expand locally, but globally.
The world is becoming a smaller place, and the UK is home to start-ups that have their grass roots abroad; with the most recent research showing that 1% of companies are foreign-owned.
Furthermore, research conducted by the Centre for Economic and Business Research found that by 2025 British small businesses plan to expand overseas.
With a global outlook on the future, businesses wish to partner with banks who can support their ambitions, rather than restrict them.
Fast service
When you think about starting a business or arranging a financial transaction, banks have a notorious reputation for delaying simple processes and charging high prices for what are often standard tasks.
Burdened by an over-regulated market, outdated systems, and huge costs that they have accumulated over decades, high street banks make funding and basic business accounting feel like mammoth tasks.
FinTech has revolutionised basic banking practices by removing the middle man.
Transferring money abroad, generating funding, payment processing and investment can all be done without the need of a traditional high street bank.
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Driving businesses to become more productive and get new ideas off the ground quickly is possibly a major factor in the FinTech boom.
As we can see from these main factors, while banks are trying to catch-up with the disruption caused by FinTech, businesses are going to choose FinTech options over traditional banks until they can become competitive and trustworthy again.
Omar Mohamed is Operations and Financial Market Analyst at Imperial FX.
With a Masters in Finance and Banking, Omar has a wealth of experience in analysing financial markets on an international scale, and has worked for a number of house-hold financial brands.
Omar regularly contributes his opinions on the Imperial FX blog surrounding financial markets, providing insight to businesses who require this information to do business globally.