Technological advancements are rapidly changing the financial landscape, and regulators and traditional companies have no choice but to adapt or be left behind, according to Dr. Abdalla Kablan, the chief of scientific officer of the SIXCAP Group.
Financial technology, or fintech, made possible by the Internet of Things, artificial intelligence, and big data analysis, is disrupting the financial sector with innovations ranging from mobile payments and transfers to crowdfunding and even the use of machines for asset management.
“These have created a challenge to the industry,” Dr. Kablan told policy makers and business leaders gathered at the third annual meeting of the Indonesia Economic Forum (IEF) at the Shangri-La Hotel Jakarta on November 15, 2016.
“The traditional banking system is not rapidly evolving,” he added.
A fintech and data science expert, Dr. Kablan said fintech solutions are now providing banking services in a faster and more efficient method.
“The role of banks is changing,” he said. “Even though people need banking, they don’t necessarily need banks.”
But banks still have the customers, and so the banking model has to change to more of an app store offering different kinds of fintech solutions.
“Although many banks will disappear, forward thinking banks will evolve and create financial app stores,” he explained.
“The traditional financial sector must understand that we need collaboration not competition, because people need banking but do not have access to banks.”
Globally, around 2 billion adults are excluded from the financial system. This lack of infrastructure created room for innovation that would not find success in over-banked and heavily entrenched economies in the west.
“This is why financial technology will come from Asia, Africa and Latin America,” he said, adding that today, in 16 African countries, there are more mobile money accounts than bank accounts.
The financial industry, he said, is reaching its “Kindle” moment – when e-books became accessible to the masses through an affordable device, leading to the shuttering of many traditional bookstores.
“If we think of the internet, TCP/IP existed for years before the browser made internet accessible,” he explained.
“Blockchain was written in 2008, and nothing much has happened yet since. We know that it’s the future, but there’s no ‘browser’ moment yet.
“The creation of a blockchain marketplace is the future,” he said.
All these developments are also because trust in the financial system has been eroded since the 2008 financial crisis. More than 70 percent of millennials, according to him, are more excited by a financial product launched by Google or Apple than by their bank.
“We need robust regulations for this,” he said.
In the end, he added, "financial technology will democratize finance in the same way the internet democratized information."