(Expansion) – The typical example of industries or companies surpassed by technology is the case of Kodak, where the arrival of digital photography displaced traditional photography; In finance, for some years there has been talk of fintech, basically companies that apply new technologies to financial services. However, it is not clear that these new companies will replace traditional players, such as banks.
In general terms, we understand fintech to be the application of technological innovations to financial services. The term comes from the English, Finance Technology . But we could say that at the time the use of ATMs or computers in bank branches also meant the application of new technologies in banking, although we were not talking about fintech back then.
To be more specific, the type of technology we refer to as fintech is related to the application of data science, machine learning , and artificial intelligence. With the above, services that required physical infrastructure or to be carried out by people can now be offered digitally.
The range of services covered by fintech ranges from credit granting to investment services, as well as payment processing platforms. Known examples of fintech in Mexico are Clip and Kavak; In the United States (EU) there are a large number of these companies, one case would be Robin Hood , a company that offers brokerage services in the stock market through an app or PayPal, which is a payment platform.
In principle, we could consider that fintechs compete with banks, but not necessarily. In fact, banks have sought to adapt their services to new technologies and practically all Mexican banks have applications from which it is possible to make payments or even take out loans. Currently, a fundamental part of the business is investment in technology and digitization, and an example of this is the number of bank branches.
In December 2020, commercial banking in Mexico operated with 12,068 branches while, as of May 2022, the number of branches is 11,783. The maximum level of bank branches was reached in 2019 with 12,883 units; since then the trend has been downward. Although they are still necessary, the digitization of services makes investment in physical infrastructure less and less necessary.
The advantages that are supposed to be exclusive to fintech companies can also be exploited by traditional banks to the extent that banks continue to invest in digitization. One of them is that digital services require less physical and personal infrastructure, which reduces costs.
Also, technology companies can store a significant amount of data about customer transactions. Such information and the use of techniques such as Machine Learning and data science allow a better risk analysis of borrowers, as well as a better evaluation of issues such as payment capacity. Hence, it is not strange to see companies that were originally offered as payment platforms seek to migrate to financial services, the information they have on the ‘transactionality’ of customers is gold.
Fintechs have seen exponential growth in recent years, although they have recently faced challenges in an environment of economic slowdown and higher interest rates, the latter affecting the funding capacity of some fintechs.
In conclusion, fintech companies will continue to revolutionize the way financial services are provided, however, traditional banks, at least the most important ones, have sought to adapt in such a way that it is not likely that they will be left behind in the face of the emergence of new technologies. Investment in technology and digitization is one of the main issues for banking today.
Editor’s Note: Eduardo López Ponce is a Stock Market Analyst at Grupo Financiero Ve por Más, he is an economist by profession, with more than six years dedicated to stock market analysis. Follow him on and/or on . The opinions published in this column belong exclusively to the author.
