New-Age Banking: Pros and Cons of Banks Integrating FinTech and MSB

Traditional financial institutions live in an ear of innovation, where multiple startups and micro-corporations offer personalized and user-directed services to consumers. This means that while a number of people going to the bank to deposit their money are still significant, the same number of people are also looking for ways to personalize their financial experiences. The way that the landscape is currently changing, it’s difficult to determine whether traditional financial institutions will still remain significant in the next decade or two.

In order for them to stay afloat, banks have the unique opportunity to integrate FinTech and improved MSB services within their systems. While FinTech creates more innovative and personal user experiences for consumers to enjoy, an improved MSB service consolidates the financial needs of consumers to one corporation. However, a more personalized financial experience means that it will be easier for users to go about their financial transactions. Included within those users are cybercriminals who use online banking to go about their operations.

Clearing options: convenient yet risky

Politics has a way of getting into the financial industry, with countries blacklisting other countries affecting the capability of individuals to proceed with their financial transactions with banks that exist in countries who have shaky political relations with their own. In fact, the EU has recently blacklisted a few countries, making the banking operations within those countries increasingly more difficult. This means that consumers and users within those countries must rely on MSBs, which offer more lenient clearing standards.

A partnership between banks and MSBs may grant a reprieve to the struggles of the individuals within those countries, as well as allow these banks to access a market that would be difficult for them to access otherwise. However, this would mean ta hat banks would also have the same clearance standards as the MSBs that they choose to collaborate with. This proves to be slightly problematic, as banks are significantly larger than conventional MSBs and therefore have access to huge amounts of personal data gathered from their clientele. The integration of MSBs and the integration of their clearance standards may prove to put this information at risk.

Banks also become the target of higher regulatory scrutiny, which means that it would need to strengthen its compliance with regulatory standards. This could be done through hiring third-party corporations to ensure that they do comply with those standards, but that would mean an added expense for the bank. Considering that banks are bigger institutions, the cost for increased regulatory compliance would translate to an increase in bank fees as well, which would not bode well with their consumers.

User experience and flexibility

The integration of FinTech would mean banks could create a better, more efficient, more consumer-driven system to cater to the needs of its customers. This capability to adapt to the needs of consumers will give banks an edge over traditional financial institutions who do not invest in this integration and would even allow them to become stronger than medium-sized FinTech startups. Not only does this strengthen banks’ holds on their clientele, but it would also be able to attract consumers who prefer to consolidate all their financial transactions to one institution.

Unfortunately, connecting an array of different systems and communication devices comes at a price. The saying “a chain is only as strong as its weakest link” proves true when it comes to the integration of banks and FinTech. A single piece of machinery or software with a poor security system can be easily exploited by hackers. Furthermore, in order to facilitate expedient connection in the first place, systems need to be mutually compatible and work seamlessly with each other, which may be difficult to achieve considering current FinTech corporations operate on a small scale.

Ultimately, multiple opportunities for growth and innovation are available for financial institutions who wish to take the leap. However, in order for full functionality and security, a great investment on both parts of the partnership would be needed in order to achieve efficient, user-friendly transactions consolidated into one institution.

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