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Financial technology, also known as FinTech, forms a new revolution within the financial sector that aims to use technology in order to improve the industry and make it more efficient. FinTech companies generally comprise of disruptive startups that are challenging the way that things are currently run, attempting to give more back to the customers who use the services. But will they be able to challenge the status-quo and overtake big banks?

How do FinTech companies work?

FinTech companies have been brought about because of the increase in innovation and technology that we are witnessing in the modern world. They use technology as their means of making the financial world easier for the everyday user, making use of the power of smartphones, apps, and the huge level of connectivity that we now have.

Banks, to a degree are FinTech companies, with their own dedicated mobile banking apps, but some of these are typically seen as nothing more than after-thoughts, and regularly pick up negative reviews and complaints.

Other mobile banking apps, such as Revolut, are dedicated apps and have no physical branches or stores, meaning they can focus solely on their financial technology experience. This allows for a streamlined and easy experience that makes for a much better app from giants such as Barclays or Santander.

But they attempt to go further than the other mobile banking apps, such as with £500 free international withdrawals each month and access to the very best exchange rates on the market, allowing them to offer better rates than other established credit cards.

This is alongside other fast-growing FinTech startups which appear to be overtaking big banks such as Transferwise, which allows for hugely cheaper international money transfers than big banks; typically eight times cheaper.

Essentially, the one thing that all of these FinTech startups have in common is that they are attempting to take power away from those who have, until now, been left previously untouched. They are doing similar things that Uber has done to the taxi world, or Airbnb has done to the rental world; making things easier and more cost-effective for the consumer.

But will FinTech be able to overtake the big banks?

There has been a huge distrust in banks since the 2008 crisis, and this will take many, many more years to die down. This has, in part, been the reason for such a large increase in FinTech companies.

There can be no denying that FinTech companies are going to have a profound effect on big banks. The latter is tied down with stringent regulations, top-line growth, and slow economic recovery. This is alongside the fact that FinTech startups will continue to drive prices down and eat away at big bank’s profit margins.

Big banks do still record yearly profits of around $1 trillion, and it is likely that this won’t drop dramatically anytime soon. But with roughly 12,000 FinTech start-ups on the market and counting, big banks will need to adapt or risk falling behind the competition. So yes, if big banks don’t adapt and modernise, it is likely that one day we will see FinTech overtake them.

Can FinTech and big banks work together?

Big banks and FinTech are not two separate industries; they are part of the same thing. We are already beginning to see banks adapt to the new wave of technology, such as Apple Pay being built on top of existing banking systems.

Big banks know that they are having to recover lost ground and build trust back up in their organisations. The fact that Apple Pay is built on their systems shows that they have a huge interior engine that drives much of the financial industry. However, it is the exterior where they are lacking, the actual customer-facing side, that FinTech is nailing.

The banking and finance industry have become dinosaurs amongst its evolutionised FinTech counterparts and they are struggling to catch up. However, many have said that they are willing to help and fund FinTech if it can be integrated in their businesses.

Big banks have the dominance, the power, the money, and the establishment to adapt and change to the ever-developing market around it. If they do this, it’s likely that they will maintain their ultimate dominance, albeit with some loss to FinTech startups. Failure to do this, however, will let us witness FinTech overtaking big banks.

Written by Anna Lemos