Would fintech force banks to disappear?

With today’s dependence on the use of online banking to replace in-person visits to branches, it is expected that bank branches around the world will disappear one day, sooner or later. This assumption is based on many factors, such that online banking services offer a wide range and variety of web-based financial services that make the accessibility of banking services and financial transactions easier, faster and less costly.

Also, online banking can be accessed via personal computers or mobile apps at all times, regardless of the official working hours of the bank. All a customer needs to access his or her bank account from anywhere is a secure password and a good internet connection.

One of the major advantages of online banking comes especially during crises such as the COVID-19 pandemic and lockdown periods, when both business and individuals appreciate access to fast-paced banking.

Online payments in Saudi Arabia during the peak of the COVID-19 pandemic last year witnessed a significant increase in volume. For example, MADA payments through point-of-sale devices increased by 67 percent to 543 million transactions compared to the same period in 2019, while online payments via the internet increased by 406 percent to 20.8 million transactions during the same period.

Bank branches are here to stay, and fintech companies will complement their work

Talat Zaki Hafiz

It is believed that fintech and digital banking will force banks around the world to close down more branches in the near future. Saudi Arabia is not so different from the rest of the world, especially with its banking sector containing very strong digital network infrastructure that can support all types of electronic payment channels.

It is also believed that the Saudi Central Bank’s recent approval for two digital banks to operate in the Kingdom (STC Bank and Saudi Digital Bank) is a clear indication that most banks in Saudi Arabia will begin to shift to the digital world. A recent national survey conducted in the Kingdom by a Fintech Saudi team supported that argument. It revealed that only two out of 10 customers visited their bank branch in a month’s time and 93 percent of customers primarily conduct their banking transactions electronically. Additionally, three out of four customers use at least one fintech solution.

Also, one major target of the Kingdom’s Vision 2030 is to move towards a cashless society, with increased fintech activity and open banking policy helping to support the potential shift of society toward digital banking.

It is worth noting that the number of bank branches in the Kingdom dropped by about 5 percent as of June 2021 compared to the same period last year. There are now 1,969 branches across the Kingdom. Likewise, the number of bank remittances services centers fell by about 4 percent, and now number 724. This decrease is not necessary because banks are downsizing the number of branches, rather than reallocating or reopening them in different structures that focus on enhancing digital banking.

In my opinion, bank branches are here to stay, and fintech companies will complement their work. But certainly, there will be a radical change over time in the structure of bank branches and the way they provide services to their customers. Banks will lean very much toward traditional banking, but in a balanced way that adapts digitization in serving customers and digitalization in processing financial transactions. This
would mitigate any of the unforeseen risks of full-fledged digital banking, such as technology disruptions, lack of personal relationships, privacy and security concerns, and limited services.

• Talat Zaki Hafiz is an economist and financial analyst.

Twitter: @TalatHafiz