Can fintech companies replace banks?

Hossam Mounir
11 Min Read

Senior bankers warn that financial technology (fintech) companies may replace banks unless the latter develop their services to customers, especially financial technology services.

Fintech companies have recently emerged as strong competitors to regular banks in the delivery of electronic payment services.

Bankers are calling for cooperation and integration between the two sides for the benefit of all, in a way that helps each party make use of the capabilities of the other.

Mohammed Jarrah Al Sabah, chairperson of the UAB

The Union of Arab Banks (UAB), during its annual conference held last week in Cairo, demanded banks and financial institutions operating in Egypt and Arab countries to develop a legal framework for electronic payment institutions that contribute to the development of technological financial products.

The UAB stressed the importance of establishing an effective regulatory system that ensures the safety of payment systems and includes all involved parties, banks, and financial institutions to enhance the confidence of customers in the banking and financial sector in the Arab region.

According to Mohammed Jarrah Al Sabah, chairperson of the UAB, fintech, information technology (IT), and e-commerce companies have begun to compete with banks in most financial fields. They have managed to expand the financial services market and have also increased competition.

He added that the technological development used in the financial sector poses new challenges for regulatory and supervisory authorities to develop a new and strong framework that supports innovation and confidence in the financial market.

Joseph Torbey, chairperson of the World Union for Arab Bankers, said that Egypt achieved a “quantum leap” in financial technology in recent years and it now has many attractive elements for investments in the field.

He stressed the importance of financial technology in enhancing financial inclusion and providing better and more convenient banking services to customers. He pointed out that the emergence of new financial services providers competing with banks led to the segmentation of the banking services market and reduced the risks associated with the field.

Torbey pointed out that the expansion of banking services by non-banking institutions or major financial technology companies will affect the profitability of banks, noting that existing financial institutions would lose a large part of their market share or profits if the newcomers to the market use the new technology and innovation more efficiently, in a cost-effective manner, and meet customers’ needs.

Joseph Torbey, chairperson of the World Union for Arab Bankers

Ayman Hussein, deputy governor of the Central Bank of Egypt (CBE) for payment systems and information technology, revealed that the new banking law includes a special article on payment systems and financial technology. He pointed out that he aims for the CBE to supervise the entities other than banks that offer electronic payment services.

Hussein added that the CBE is working on the use near-field communication (NFC) technology in electronic payment services, revealing that the matter will be discussed by the CBE’s board of directors before the end of June.

Mohamed El-Etreby, chairperson of Banque Misr and vice president of the UAB, said that financial technology plays a pivotal role in shaping the future of financial transactions and services, not only among individuals, but also for financial institutions, investment funds, and wealth management firms.

He added that the development of the IT industry has had a great impact on the financial sector in general and on the banking sector in particular.

El-Etreby pointed out that banks have witnessed a boom in the quality, speed, ease, and regularity in the delivery of banking services to customers across the world. This has had a positive impact in the multiplicity of mechanisms and tools of marketing banking products, enhancing customer confidence, and increasing segments of banking customers. It has also established a positive image of banks among the public about the important role they play in the service of the economy.

“Fintech and its various applications allow opportunities and impose challenges simultaneously for banks, financial institutions, and supervisory bodies. Hence, banks and regulators should consider how to balance between the maintenance of the banking system and full compliance with laws and regulations on one hand, and the development of innovation in financial services on the other hand,” El-Etreby said.

He pointed out that the improved regulatory environment is essential to ensure the continued safety of the financial services sector, because it allows emerging financial technology companies to operate and test products or services in a suitable environment and for a specific period of time. This test can determine if that emerging company can operate on a wide scale as part of the existing financial services sector.

El-Etreby further added that there are still many international concerns about the developments of the financial sector, whether in terms of the expansion of the formal financial sector in providing services and improving financial inclusion, or shadow banking carried out by non-banking institutions and providing financial brokerage activities.

Mohamed El-Etreby, chairperson of Banque Misr and vice president of the UAB

He noted that these concerns also include the rapid development of fintech services companies that provide innovative solutions that compete with what the banking sector offers. He warned that these companies may seek to act as alternatives to banks, demanding all involved parties to take precautionary measures to maintain the stability of the banking sector.

El-Etreby stressed that the enormous potential of financial technology, with all its components, such as blockchain technology, fintech, and cryptocurrencies, should not be unleashed before conducting further reforms to fill gaps in regulations concerning consumer protection and information security. He also called for the development of the business environment and information and communication technology infrastructure, as well as increasing financial awareness.

“Banks, regulators, and IT companies should work together to create a favourable regulatory environment and promote the use of digital payments,” he said.

Tarek Fayed, chairperson of Banque du Caire, said that there is great interest among the Egyptian banking sector in new technological services for their role in enhancing financial inclusion and spreading banking services.

He added that the establishment of the National Council of Payments and the CBE’s decision to launch a EGP 1bn fund to support innovation will play a major role in supporting and promoting financial technology.

Ashraf El Kady, chairperson of the United Bank, said he expects that digital banks will replace regular banks in the near future, which will also reduce operating costs by about 30%.

He pointed out that the Egyptian government and the CBE are working according to an economic reform plan to achieve sustainable development and transform Egypt into a regional and global centre for the provision of financial technology services.

He noted that Egypt established the National Council of Payments to motivate citizens to engage in the financial inclusion system, reduce the use of cash, integrate the lower-income groups and marginalised segments within the banking system, and merge the parallel economy with the official one.

Ashraf El Kady, chairperson of the United Bank

According to El Kady, the Egyptian market is attractive for financial technology services companies, pointing out that Egypt, Jordan, and Lebanon occupy second place internationally in terms of the number of fintech companies, up to 15 in each. The UAE ranked first globally with 30 fintech companies, he said, saying that reflects the development and rapid growth of those types of investment.

El Kady pointed out that all these global and domestic factors led to the transformation of the United Bank into a digital one, providing financial services via the internet and smartphones. He added that the bank’s developed infrastructure helped it to absorb the current digital transformation, supported by good planning for modernisation.

“The United Bank has become one of the top 10 banks in the Egyptian market in terms of the provision of digital services, including electronic payments, internet and mobile banking, cash management via internet banking for corporates, and digital wallets,” El Kady said.

He added that the bank has given priority to raising its employees’ efficiency with the aim to produce a generation capable of dealing with the changes in financial technology. The training also seeks to encourage innovation and development of regular banking services and expand financing solutions to different community segments.

El Kady praised the Nile Pioneers initiative launched by the CBE, in which the bank is participating to finance innovative projects and ideas and support Egyptian youth in the field of financial technology and artificial intelligence.

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