The term Fintech is derived from the combination of Financial Services and Technology. Hence, the full form of “Financial Technology”.
Fintech was originally used in the back end systems of the financial institutions and banks. It facilitates the use of digital technology to enable the traditional banking services at your fingertips.
The whole idea of Fintech is to automate financial services and to help users better manage their finances at their convenience. To give you an example - Paypal, Paytm, all the online banking applications and wallets are some of the Fintech companies.
Fintechs in Banking is thriving rapidly due to its wide range of offerings that come with convenience.
With the increase in the number of frauds, nowadays people are switching to Fintech as it allows automation with transparency. People have started to prefer mobile banking over the traditional in-person method of banking.
Fintech has made several important and daily required documents handy, which is saving customers time from long queues.
So, how is Fintech exactly disrupting Traditional Banking?
Better customer service
With the growing advancements in technology, customers expect more from their banks than just products and services. Customers are inclined to Fintechs because it focuses on better customer experience as compared to traditional banking, which focuses only on hooking customers by providing a variety of products and services.
A chatbot is an interactive artificial intelligence(AI) application used to streamline and make the customer service process efficient-Another disruptive tool.
Fintech is using a customer-oriented approach- automation, transparency, and flexibility; as its competitive advantage over the traditional banking system.
Use of Numerous Communication Channels
While the traditional banking system had ample branches and helplines as a medium for communication with customers, Fintechs uses numerous channels for communication with customers.
Establishing a mobile banking app was one of the major disruptive moves by Fintech.
Followed by the introduction of UPI which has completely changed the game for banking.
Due to these newly created communication channels, Fintech’s reach has increased tremendously.
Fintech is loved by tech-savvy teens who are the major reason for its mouth publicity.
Banking systems must stay relevant for younger generations with time. And this generation is all for convenience at their fingertips.
Quicker and better solutions
There are so many services that are readily available now like:
- Bank Statement
- Application and Reissue of Debit card and Credit card
- PIN generations for cards
- Account balance check
- Updating KYC
- Bill Payments
- Investment Options
- Fund Transfer
For queries, technologies like chatbots help in acing the process.
There are several shortcomings in the current banking system that has led to the successful emergence of Fintech in banking.
To name a few:
- Lack of innovation and investment in it
- High costs of operations
- Highly regulated banks leading to too many compliance norms
- Low involvement of customers in the operations of banks
- Difficult to apply any major changes to the already built banking structure since a while ago.
Fintechs focuses on providing one single product or service exceptionally with low operating costs and the best customer experience possible. PayPal and GooglePay are examples of money transfer applications.
Banks should realise the need to equip themselves to remain relevant to the fast-evolving younger customer base.
Banks should highly consider reallocating their investments to compete with Fintechs in areas like:
- Technologies that help them in digital transformation
- Bettering Customer Experience
- Integrating Fintech ideas without collaborating with them by leveraging their strengths.
Traditional and conservative banking must consider collaborating with Fintechs as it can provide them with some high-yielding results.
According to the “Fintech revolution in banking: Leading the way to Digital”, a report issued by Infosys, the following are some major results:
To read the whole report issued by Infosys, click here
Fintech has proven to be the disruptor of the traditional banking system. They changed users from internet banking to mobile banking proving to be a digital threat for the current traditional banking.
Banks are trying to cope with this threat by implementing various strategies to their defence. Some have succeeded while some are still struggling and figuring it out.
Different banks are reacting differently to this situation but they can be grouped into five broad categories according to their defensive strategies adopted.
To learn the five ways in which banks are responding to this digital threat, read here
Collaborating with Fintechs is a win-win situation for both in the Financial industry.
Fintechs provide convenience, transparency, and low costs whereas traditional banks have regulatory know-how, infrastructure, and customer trust.
If the strengths of both industries combine, it can develop synergies that will benefit both of them.
There are few banks behind the Fintechs responsible for its boom.
To discover which are the banks behind the Fintechs and how it helped the Fintech industry in banking, read more
Fintech has had a huge impact on the traditional banking system and will continue to do so in the near future.
It will make open banking accessible which will lead to more offerings and choices for clients. According to Wikipedia, “Open banking is a financial services term as part of financial technology that refers to The use of open APIs enables third-party developers to build applications and services around the financial institution. Greater financial transparency options for account holders ranging from open data to private data.”
Smaller banks will also try to jump into the train of Fintech to survive in the financial sector.
Lending will become easier and quicker as compared to traditional lending.
Regulatory authorities will likely announce incentives in compliance norms to promote the use of technology and to help banks adopt the new era.
To read how Fintech impacts the financial system and financial services, click here
Let us know your views in the comment section below.
To read more Fintech-related blogs, refer to the links attached below:
Fintech’s boom has been the talk of the town for some time now while has raised several questions on the survival of banks. To find out if Fintech will ever be able to replace banks in the future, click here
To educate yourself about Fintech and to keep yourself updated with the Fintech industry, there are few great writers that you can follow. Find out
The Federal Reserve has made changes to Regulation D, which explains how much money Financial Institutions need to keep in hand compared to the total amount they owe to their depositors. Read more
We, at OpenGrowth, are continually looking for trending startups in the ecosystem. If you want to know any further information about the startup ecosystem or have any mind-boggling ideas, do refer to the other blogs at OpenGrowth. If you have any suggestions, do let us know in the comment section below.
*Note: The content published above was made in collaboration with our members.
Ayushi is currently pursuing Chartered Accountancy. No secrets there that she loves to read! She believes words have the power of healing and is a medium that can convey like no other. She hopes to connect with people through her empathy, thoughtfulness, and by adding value to their lives.