By Mario Hernández, CEO and Founder
The US financial system has assets of over $15 trillion dollars, of which 5 banks control almost 50% of the total. To better understand this concentration it is important to note that in the United States there are more than 7,000 banks.
In Costa Rica, our financial system has total assets of $45.8 billion dollars. Here, 4 banks control 70% of these assets from a total of 16 banks.
In terms of profits, the numbers are similar from a concentration perspective. This means that large banks in absolute terms have much greater resources to invest in technology and innovation.
The question the is, what can small banks do to keep on competing? Keep in mind that a small bank must comply with the same regulations as a large bank from every single point of view: local requirements and laws, international requirements, anti-money laundering regulations and multilateral agencies that provide funds. What can small banks do to invest in innovation, continue to compete and avoid becoming a commodity of money or a niche player? The answer lies in FinTech companies.
A survey of 219 banks by American Banker magazine published on June 30th shows that 87% of banks do not have a formal strategy in terms of payments, which is also perhaps the most profitable business of the portfolio of products that financial institutions have. Additionally, it shows that 71% of banks do not analyze their card data to gain valuable insights into customer behavior patterns.
If we assume that the financial industry in the United States is more developed, and extrapolate to Latin America and the Caribbean, then it is valid to think that small banks face a great challenge.
New technologies in payment means, namely, digital coins, person-to-person payment apps, real-time payments, mobile wallets and blockchain technology are moving so fast that small banks do not have time or resources to invest and understand them and execute strategies around them.
FinTech companies, being not subject to this great amount of excessive regulation, can and must become strategic allies to the banks. These companies have the resources and can develop applications and carry out important innovations for the benefit of the financial system. Small banks that know how to forge alliances with FinTech companies will gain significant competitive advantages that will allow them to compete one-on-one with large banks. Big banks, meanwhile, are doing their thing by buying some of these FinTech to buy time or make alliances that will allow them to differentiate and continue to grow.
The truth is that Banks and FinTech companies should seek to work together, uniting the economic power of banks with the capacity for innovation, agility and development of the FinTech companies, for the benefit of the end customers, in order to avoid a fragmentation of the industry and achieve best results as an industry.try.