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Are FinTech Firms A Threat To Traditional Banking Firms?

28 February 2017 No Comment

The internet has brought several changes to the finance industry. One of these changes is the introduction of online banking. The new financial service is proving be a threat to the traditional banking sector. This situation has forced several traditional banks to evolve and adopt a similar approach to business. Financial technology (FinTech) firms offer online financial services.

FinTech companies are not new. They have been around for several years. However, the recent growth in the industry has resulted in more startups in the industry. The services provided by these companies have been broadening every day. Initially, most FinTech firms offered money transfer services. However, they are now offering innovative services, including lending and retail-repayment services. James Dondero has been monitoring the industry. Over the years, he has seen even mega-firms such as Apple, Google, and Samsung join this competitive business.

The different approach to offering financial services has resulted in the success of these FinTech firms. The focused services ensure that these companies can satisfy the specific needs of their clients. For instance, PayPal Inc has enabled online buyers to purchase goods and services online without sharing their crucial financial information like credit card number and pin.

In addition, the services offered by these firms are cheap. While traditional banks still charge exorbitant fees for their services, FinTech companies are providing better services at just a fraction of the cost. FinTech clients can access their services from almost every corner of the globe. This flexibility has seen the industry establish itself as the ideal financial services provider.

In the past, incumbent financial players have dominated lending and money transfer. However, FinTech companies are breaking this dominance. This shift has resulted in the narrowing down of the profitability of many banks. Layoffs have also become common in the industry, as banks try to remain profitable by reducing their wage bills. Such companies are also investing heavily in online banking services to ensure that can tightly grip on their current customers and attract the tech savvy generation.

Financial experts such as James Dondero believe that the methods adopted by the incumbent financial institutions to contain the threat caused by FinTech companies are inadequate. First, they have espoused a wait-and-see approach. In this approach, the firms are conserving their resources, as they wait to see which of the many new technologies are viable. However, when the results are out, it is always too late for them. Secondly, most traditional banks are acquiring FinTech companies. Although this is a good approach, many firms have failed to integrate the concept of online business to the entire enterprise. To this end, most clients have been frustrated by the services that they receive from such institutions. The last approach has seen banks develop their online banking platforms. This method has been slowed down by the lack of agile and innovative teams that can develop creative and user-friendly services as those used in FinTech Firms.

About James Dondero

James Dondero is an entrepreneur, philanthropist, and financial expert. He is the president of Highland Capital Management. He co-founded this corporation with Mark Okada. Through the company, Dondero manages assets valued at over $18 billion. His clients include high-net-worth individuals, public pension plans, corporations, governments, and financial institutions. James Dondero holds an Accounting and Finance degree from the University of Virginia. The certified public accountant has donated millions of dollars to different initiatives.

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