Using traditional banks to access finance has long been time-consuming and problematic for individual consumers and businesses.
Many conventional banks now offer online banking services, which have made accessing their services easier and more convenient. However, there are still many challenges facing consumers when using their financial services, such as applying for loans.
Until recently, banks were relatively unaffected by the reviews of their customers, even if they followed dubious practices and didn’t offer the best deals and customer service.
In addition to this, consumers often didn’t have much choice when it came to banking, which led banks to be less competitive. In turn, costs were then transferred to the consumer, as banks had no motive to provide fairly priced services based on a competitive analysis.
There has however been a shift in the banking sector over the last five years. The Internet is having a transformative effect that is forcing banks and lenders to offer more beneficial and competitive services to consumers. The rest of this article looks at this trend in more depth.
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The rise of fintech companies
Fintech, otherwise known as financial technology, refers to new technologies that aim to improve the delivery of financial services through automation. The scope of these changes was reiterated in an interview with Lån for deg, a Norway-based company specialising in helping consumers secure good rates for different types of loans.
Kjell Amund Bergheim, their CEO, stated, “Consumers now have more options than ever before when it comes to banking due to greater opportunities to check online reviews to see if their services are reputable’. In addition to this, many fintech websites have emerged where a consumer can fill in a single form for free before receiving a range of offers from multiple banks.
The effect of fintech on the traditional banking system has been significant, forcing banks to change how they operate as borrowers are becoming more discerning. In turn, banks have to be more competitive, which is driving down the costs of borrowing.
Not so long ago, people would only have heard feedback about banks through word of mouth. However, that all changed with the advent of the Internet age, leading to the greater dissemination of information around the world.
In today’s world, people can check the reviews of almost any business whichever sector it is in and this of course includes banking.
Online review sites focusing on banking are an important tool for consumers of financial services. They allow people to make informed decisions before borrowing or spending money. Reviews of banks provide key insights into the benefits and risks of a financial product based on other people’s previous experiences.
Online banking reviews are considered to carry as much weight as a word of mouth recommendation, therefore banks are under pressure like never before to provide services that are faster, fairer, and more affordable. Some examples of review sites popularly used to check the reputation of banks are Trustpilot, Google, Monese, Monzo, and Zopa.
Another tool on the Internet driving banks to change their ways are price comparison sites. These websites work by allowing consumers to fill out search criteria for a specific service, which will provide a list of results to compare by price or reviews.
Comparison sites further increase the competition between financial organisations, resulting in lower prices and better service for the consumer.
Digitisation of banking
To survive, almost every bank has had to adopt technology to digitise every aspect of their operations. Nowadays consumers of financial services expect online banking which allows them to access, manage and transfer funds from anywhere in the world from their computer or smartphone.
The move towards digitisation in the banking sector has substantially improved customer experience by helping them to access funds easily, save time and reduce the risk of human error.
Due to greater competition, banks must now constantly find new ways to decrease costs and increase profitability. Therefore, blockchain technologies similar to those used by Bitcoin and other cryptocurrencies are increasingly being accepted and adopted by mainstream banks.
Blockchain technologies work by creating and maintaining a decentralized transaction ledger. Some of the positive developments linked to blockchain adoption are new revenue streams, greater efficiency, reduced costs, and lower risks.
The adoption of blockchain technologies in the banking sector helps to re-establish trust as it enables direct P2P transactions. Instead of relying on other banks to clear and store information related to payments, blockchain technologies use a network of nodes to handle and record transactions. This translates into faster transaction times and lower costs for both the bank and the individual.
In the past, banks didn’t always offer services that were in the best interest of consumers. At times, the financial products being offered were priced unfairly or unsuitable for the end-user.
However, over the last 20 years, the banking sector has been disrupted by developments on the Internet. Consumers now have access to various different banks and information on their affordability and reputation. Due to these changes, banks and moneylenders must try much harder to be competitive.