Richard Chongo asks: A CALL FOR DISCUSSION
DOES FINANCIAL TECHNOLOGY HAVE THE POTENTIAL TO “BANK WITHOUT A BANK”? IS IT A THREAT TO TRADITIONAL RETAIL BANKING? A CASE OF PEER-TO-PEER LENDING
I have heard that money is the raw material for financial institutions. I have also heard that financial institutions are intermediaries between those who have money – depositors who lend money to the bank – and those who do not have the money – borrowers who borrow money from the bank. In a traditional banking style, depositors lend the bank money at no or lower return on their investment. The bank then on-lends the money at a higher interest rate. In this case, there is no or little financial gain for the depositors to keep their money at the bank, and the borrowers are slapped heavily when they borrow the depositors’ money but the bank gains.
At the same time, enhancements in financial technology innovations have and continue to simplify the way financial transactions are done. FinTech innovations are dealing with issues of convenience where financial transactions can be done at the comfort of one’s home, instantly and without pen and paper interference, just to mention a few advantages.
In addition, the other wave that FinTech innovations have brought to life is the peer-to-peer lending (P2P lending). P2P lending platforms allow a direct connection between the depositor and the borrower bypassing the high costs that they would incur from traditional banking. It is an innovation that creates a strikingly better return to both parties. A few examples of P2P platforms are British RateSetter, Zopa, and Funding Circle, European P2P IsePankur, American Lending Club and Prosper, African Lendico and RainFin, and Asian Lufax. Even though there are questions surrounding P2P concerning risk management, insurance, regulation, etc, the wave is still moving with a promising pace.
With reference to your practical and theoretical knowledge, do you envision the financial technology innovation, especially the P2P platform, taking over from the traditional retail banks? Will it exert pressure on the bank’s operations forcing these banks to re-strategize? Can people envision a future with a virtual vault housed in a server manned by just a few FinTech specialists?
Thank you for your constructive feedback!