What is Fintech, and How has Fintech Transformed the Banking Industry?

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Did you know!

• Goldman Sach has estimated the net value of Fintech at 4.7 trillion.
• Worldwide 12K Fintech startups have started.
84% of Americans have been using Fintech regularly since 2016.

Fintech is ruling the world and is one of the most promising industries with a CAGR of 23.41%, from 2021 to 2026, as per Market Data Forecast. Thus, it is essential for any businessman dealing in financial institutions to have a sound knowledge of Fintech.

To understand how Fintech will change banking, we need to understand what it is and what it isn’t. Fintech, or financial technology, refers to any technology that uses information systems to facilitate financial services in some way or another.

Since the birth of the internet itself, it’s been around when banking services started offering online versions of their tools and services that can be accessed from anywhere with an internet connection and a computer, rather than requiring users to visit one of their branches physically.

Banks have dominated finance for centuries, but these firms—with names like Zelle, Venmo, and WePay—are redefining what it means to the bank. No longer reserved for their brick-and-mortar locations, customers can access their money from anywhere.

It’s not just about banks versus startups anymore. The Silicon Valley of financial services is popping up worldwide: In countries like Kenya and China, tech companies are revolutionizing mobile payments and services for things like insurance, loans, etc.

Here’s an infographic depicting the impact of Fintech on traditional banking services.

fintech stats
Image By: Statista

The infographic shows a significant impact on the payment procedures. Before we discuss it in detail, it is ideal for clearing all shrouds of confusion regarding the definition of Fintech.

What Defines Fintech?

In simple terms, Fintech is a broad term used to describe financial services that leverage technology, innovation, and data. It is often used interchangeably with financial technology or banking technology.

A fintech company can be an innovative bank or credit union, a digital platform designed to provide consumer-oriented financial products, services, and information.

Some companies use all of these strategies at once—they function as traditional banks by providing loans or other financial products while also offering innovative new ways for customers to interact with their finances.

How Does Fintech Affect Financial Services Firms?

The rapid rise of fintech firms has caught many incumbents flatfooted. In recent years, new technologies have emerged that are reshaping financial services: Cloud Computing, Big Data Analytics, APIs (application programming interfaces), social media networks, mobile applications, and even 3D printing have all been heralded as game-changers.

All these technologies promise to increase efficiencies in core processes and decrease costs. But while some companies embrace these innovations, others remain entrenched in an old-school mentality of legacy systems designed for yesterday’s business model rather than tomorrow’s. Nowhere is that more evident than in client experience.

Here are the top impacts of Fintech on the Banking Industry

1. Mobile Banking

Traditional banks have long been safe investments with an array of convenient services. Still, technological advancements in recent years have forced traditional banks to compete with Internet-based alternative financial services providers called Fintech.

While fintech companies offer various functions—including peer-to-peer (P2P) payment platforms, microfinancing, digital currency, credit applications, and crowdfunding platforms—they all focus on mobile technology.

With that in mind, Fintech is gradually shifting from a mobile platform into a web application. In turn, banks must revamp their online offerings with custom mobile app development to provide users with comparable features offered by newer companies.

2. Online Transactions

The internet has changed all kinds of industries, but none more so than financial services. Financial technology companies (or Fintech) provide convenient tools for consumers to make transactions—and, as a result, have become a highly competitive industry.

Some famous examples include online stock trading services like E-Trade or Robinhood and online lenders like Lending Club or Prosper. With these tools, users can invest in securities and borrow money without ever leaving their homes—aside from maybe picking up an occasional delivery meal or driving to an ATM.

And even these channels are going digital: Most banks now offer mobile apps for sending money via Venmo or request funds via Zelle that allow them to compete with fintech payment providers and larger tech companies like Apple Pay.

Situations in developed nations like Canada, Singapore, and Hong Kong have gone 75%+ cashless owing to advancement in Fintech services.

3. Omni-channel Branchless Banking

Banks have been integrating mobile and online channels for years, but the latest innovation providing customers a branchless format. A branchless bank doesn’t operate physical branches.

Instead, it uses virtual assistants to answer customer questions and manages interactions over email, text, or social media. In many ways, branchless banks resemble Telcos. Some of them even have chatbot platforms that mimic a human assistant in voice tone or wording.

You can expect to see branchless banks make their presence felt through social media channels as well. After all, Fintechs get managed by former financial services employees who know firsthand where there’s room for improvement.

4. Smart Chip Technology

It’s not just ATMs anymore. Many financial institutions, large and small, offer smart chip cards that customers can use at any location accepting Visa or MasterCard.

These chips generate a unique code for each transaction (think of it as a one-time password), making it extremely difficult for fraudsters to use cloned or counterfeit cards.

If your bank doesn’t offer smart chip technology yet, chances are you will soon—but if you don’t have access to one, then find one which offers as most banks do so today.

Of course, even with smart chip technology on your card, there is still a risk of fraud; but by using these chips whenever possible, you can significantly reduce those risks.

5. Client Service 24/7 Chatbots

Have you ever been frustrated that your bank doesn’t have a 24/7 chatbot to help with customer service? Well, that’s starting to change.

Banks worldwide are increasingly using chatbots as customer service representatives; they ask questions and respond to keywords like my account or transfer money. In some cases, chatbots can even be linked directly into a user’s accounts to make transactions.

A survey by PwC of 2,000 financial services consumers in nine countries showed that 40% would trust a chatbot for financial advice, and 62% would trust it for recommendations about products and services.

6. Blockchain

Blockchain is simply an open, distributed ledger that contains information in digital form. Every time transactions occur between two parties, or even within a single party, technology must track a record of such actions—and these records are what make up a blockchain.

It is a chain of blocks that contains all kinds of information about whatever it tracks. For example, you could use Blockchain to keep track of every purchase made by your company.

Each block would represent one sale with all relevant data about each transaction recorded in that block—not only making those sales verifiable in real-time but ensuring that nobody can alter or tamper with those records after the fact.

Here’s an infographic depicting the popularity of Blockchain in different industry verticals, including Fintech:

banking software development
Source: Statista Blockchain Use Cases

One of Fintech’s biggest buzzwords, Blockchain, has become a big focus for banks. Instead of each bank keeping its records on transactions (records that other banks cannot access), all transactions occur on an open network that everyone can see.

For banks, implementing blockchain technology cut-outs mediators and shave processing times down from days to seconds. Hire Blockchain developers to leverage this disruptive technology in your institution.

7. e-Wallets

Every year, millions of people make money transactions online. It’s a convenient, safe way to send or receive funds without physically being in the same place as a counterparty.

However, financial transactions are more than just sending money; banks and other financial institutions have used distributed ledgers for years to track information like stock holdings or transaction history.

Because of these advantages, companies who create fintech products can offer online services cheaper than many banks can. It is especially helpful for consumers in rural areas or developing countries with limited access to financial institutions.

Blockchain technology gets used by several fintech startups that aim to provide cheaper loans, interest-free credit cards, and low-cost remittance services.

Future Outlook

The outlook for these financial startups is bright, but it’s also competitive. Fintech companies need to constantly innovate to stay ahead of both existing banks and other emerging startups looking to get a piece of their market share.

Connect with a Financial software development company in India to drive your innovative idea into a digital success at an affordable budget.

The fate of many fintech businesses may be sealed by whether or not they can continue growing at breakneck speed while adapting to a fast-changing regulatory environment.

If one of these startups ever does achieve true success, it could transform how we save, spend, borrow, and invest money and how we interact with banks.

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