Fintech And It’s Impact on The Banking System

Fintech Revolution: Redesign of Bank Scenario

Single-piece old-school business is making earthquakes in its evolution. Fintech, unknitting the centuries-old walls to provide democratized access in the reengineering of finance, is revolution, i.e., paradigm and not technology shift. Banking was a brick-mortar business, whereas this new paradigm provides instant personalization and presentation in digital experience.

1. Fintech Genesis and Drivers

Fintech is typified by the revolutionizing of the most widespread manifestation of four categories of influence:

– Technology innovation:

Widespread prevalence of mobiles, the Internet, cloud computing, and intelligence has worked cumulatively to incubate fintech innovation. This has left space for twin platforms on high-value analysis of data and reliable transaction infrastructure.

Attitude change of consumers

Loyal Gen Z and Millennials demand a lot more from banks. Online natives of their online childhood generation of instant gratification, they will accept nothing but frictionless internet and mobile convenience-as well as open pricing and personalized propositions.

-Regulatory trends

Open banking regulation and the regulators’ sandboxes enable competition and innovation through the incumbents’ ability to work with the fintech companies. These innovations are even empowering the consumers with increased choice and leveling the playing field.

-Global financial crises

The 2008 crisis had drained the public trust from the conventional banks and provided a window of opportunity for the new fintech companies to provide alternative financial products, which were perceived to be transparent and user-friendly by the consumers.

-Increased venture capital investment:

The potential for expansion by fintech ushered venture capital funding to great heights of investment, and such investment rose incrementally every year to encourage the expansion of most startups and encourage the creation of new products.

2. Greatest Fintech Disruptive Areas

Fintech is disrupting nearly all that banks do, including:

Payments:

-Mobile Payments: Apple Pay, Venmo, and Google Pay are revolutionizing the timing and form of paying for money, enabling consumers to benefit from convenient and secure alternative payments to cash and credit cards.

-Cross-Border Payments: Fintech replaces faster, cheaper, and more transparent cross-border payments for SWIFT’s old infrastructure.

-Blockchain and cryptocurrencies: Bitcoin and Ethereum-type cryptocurrencies will secure and decentralize global economy transactions using blockchain technology.

Lending:

-Peer-to-Peer Lending: Online platforms such as LendingClub and Prosper connect borrowers and lenders directly without the involvement of traditional banks, thus providing them with competitive interest rates. The above are some of the factors that affect the old banking system. The speedup of the process of adaptation or obsolescence of any old banking system is provided by the existence of fintechs.

-Increasing Competition: Fintechs are promoting customer-focused innovation that disrupts the monopolistic hold of traditional banks.

– Incremental Shaving of Market Shares: Fintechs’ market share growth in financial services marketing is seen in lending, payment processing, and wealth management.

-Profit Margin: Operating costs are squeezing the profit margin of conventional banks today since they are minuscule in fintech.

-Necessity for Digital Transformation: Online transformation efforts are taken seriously by conventional banks’ branches to enhance online and mobile channels and customer experience.

– Fintech Partnerships: Banks are currently interacting with fintech start-ups either in the form of partnerships, investments, or acquisitions to acquire new technologies that enhance the vision of the banks.

3. The Future of Banking: A Hybrid Model?

The future of banking will necessarily be made up of a hybrid model that has a combination of both the conventional banking functionality and that of the fintech start-ups.

-Banks as Platforms: Banks can act as platforms both promoting volumes of value-added services from the banks themselves as well as forwarding value-added services from third-party suppliers.

-Personalized Banking: Banks will be enabled by AI and analytics to provide personalized financial advice on a profound as well as microscopic level.

-Embedded Finance: Financial services will be embedded within the consumers’ everyday behavior, i.e., buying and socializing:

-In Greater Emphasis on Customer Experience: Banks are going to be customer-experience focused if they are to stay competitive in the digital world at all.

-More Cooperation: Bank-fintech start-up collaboration will be the driving force to spur growth in the new areas of banks to meet the evolving consumer preferences.

-More Blockchain Integration: Blockchain technology is inescapable integration in the conventional banking system, pushing security and efficiency standards higher.

-Increased Regulatory Scrutiny: The fintech revolution that it will create will attract adaptation and consumer protection in the new regulatory environment.

The significance of cyber security:

As digital banking grew with digital assets, so did the significance of cyber security. Starting with change and opportunity:

The fintech revolution comes with challenges and opportunities.

Challenges:

-Cybersecurity Risks: Increasing reliance on digital technology has increased risk from becoming a victim of cyber attacks and holding data breaches.

-Regulatory Risk: The various rapid innovations develop rapidly in fintech, making it difficult for regulators to match the changing developments.

-Financial Inclusion: Fintech has already had the power to expand financial inclusion, but it will deepen differences between people if not executed perfectly.

-Data Privacy: Gathering and utilization of the personal data of individuals by fintech firms generate privacy concerns concerning security.

-Digital Divide: Lack of technology and computer illiteracy bring about a division between individuals and technology and thereby deny them real advantages of utilization of fintech.

-Deeper Financial Inclusion: To include the excluded members, such as small and medium enterprises as well as the poor in poor countries, within the system as many financial solutions as possible, it is achievable with the support of fintech.

-More Convenience and Efficiency: By the help of sophisticated technology, most of the financial processes could be automated, leading to money savings, preventing cost, and enhancing customer satisfaction.

-Innovation and Competitions: Fintech brings innovation and competition in the financial industry towards better products and services to clients.

-Economic growth: Economic growth can be initiated by fintech by enabling easier access to capital, entrepreneurship, and enhanced productivity.

-Globally Interconnectedness: Fintech facilitates payments which are simpler to send across borders, and servicing businesses anywhere in the world by virtue of its capability.

The Impact on Developing Economies

Fintech is able to perform its most creative activities within the domain of emerging economies.

-Mobile Money: Mobile money facility is providing financial institutions with an avenue to reach out to the millions of individuals who were previously non-banked.

-Microfinance: Fintech new start-up firms are providing microfinance schemes for the distribution of microloans to tiny entrepreneurs and micro-enterprises.

-Remittances: Fintech firms are making remittances economical so that migrant workers can remit money with ease back home.

-Information, Data and the Digital Economy

-Digital Identity: Technologies that create digital identity are helping credit histories and financial service access build.

-Financial Literacy: Fintech businesses design educational tools and content to advance financial literacy.

The Use of Artificial Intelligence and Machine Learning:

AI and Machine Learning play their part in the fintech movement too.

-Fraud Detection: AI technology is able to look at transactional data when it comes to detection and prevention of fraud.

-Credit Scoring: Machine learning models are able to process more data inputs and hence the greater precision with which machine learning models make a judgment on a customer’s creditworthiness.

-Personalized Financial Advice: AI robo-advisors offer personalized investment and portfolio management advice.

-Customer Support: AI chatbots offer customer instant response and answer questions and routine queries.

-Risk Management: AI is utilized to help scan huge volumes of data in risk detection within finances as well as risk management.

Cyber Security-Increasing Relevance

Cyber security will gain more significance under the shadows of fintech innovation.

-Data Encryption: Where there is an input of data which would be dealing with sensitive customer information, fintech firms are required to encrypt data in such a way that external usage is ruled out.