Technology has played an increasingly important role in local banking over recent years, leading to positive disruptions in the industry’s operations. Fintech, the integration  of technology into financial services companies’ offerings, provides consumers with innovative services and products.

Revolut, launched in the UK in 2015, has 45 million customers worldwide. In Malta it has 300,000 card users, equivalent to 68 per cent of the adult population. It has just been granted a banking licence in the UK, which means it will soon be able to offer more traditional banking services, such as loans and mortgages. This is good news for consumers and a sobering wake-up call to other local banks.

Revolut’s secret lies in the way it works with well-known payment providers like VISA and Mastercard to facilitate payments. This enables them to issue customers with debit cards to pay for various products and services bought online or in stores.

The dominance of traditional banks in electronic payment systems is now a thing of the past. Consumers conscious of pricing and quality of service have a choice to opt for a service provider that most meets their requirements.

So far, Revolut offers various payment services, including money transfers globally in multiple currencies, ATM withdrawals in around 120 countries, cryptocurrency dealings, and free bank accounts. Subject to certain conditions, it also charges no fees for exchanging in selected currencies.

Local traditional banks have one significant advantage over Revolut – the physical branch network. Revolut’s services are only available online as it has no physical branches. Still, the relatively new financial services company can cherry-pick those services that traditionally give banks significant non-interest income. 

The dominance of traditional banks in electronic payment systems is now a thing of the past

If local traditional banks are to compete with fintech companies, they must invest more to update their technology to offer their customers a better service. While the physical branch system provides good opportunities for banks to cross-sell their services and products, the expense of running branches is substantial. Trying to recoup these expenses by increasing fees on various services, including providing customers with bank accounts, is dangerous.

Now that Revolut has a banking licence to operate in the EU and the UK, it is more likely that its mobile approach to banking will find favour with many local consumers and businesses, and it could see them blazing a trail for others to follow.

Local traditional banks must understand that the development of neobanks and fintech platforms in the volatile financial services sector has altered how consumers handle their money.

Regulators are slowly accepting that fintech companies are here to stay and granting licences subject to certain risk management conditions.

For instance, while dealing in cryptocurrencies is a significant advantage for Revolut customers, it also presents dangers. Cryptocurrency values can be highly volatile, and users who engage in cryptocurrency trading should be wary of potentially large gains or losses. It is also well known that money laundering risks are higher due to illegal cryptocurrency dealing.  

Malta’s banking market is evolving quickly with the introduction of fintech companies like Revolut. Financial services providers must, therefore, respond to a wide range of financial demands and tastes.

Local traditional banks must match the services of fintech companies by improving global accessibility, real-time tracking of transactions, and budgeting tools demanded by consumers wanting a modern and efficient banking experience with convenience and empowerment.

Traditional banks will do well to start addressing the deterioration of traditional customer care channels, such as an efficient phone support system to compete effectively with online banks.