In a world where technology is constantly evolving, it’s no wonder that the finance industry is changing too. In this post, we’ll look at how FinTech is impacting traditional banking systems and what benefits this could bring to both consumers and businesses. We’ll also explore some challenges that need to be overcome to succeed in this transition. So, without further ado, let’s get started!
Financial technology, or FinTech for short, is an umbrella term used to describe new technologies that aim to improve and automate the delivery and use of financial services.
FinTech is a rapidly growing industry with immense potential. It can transform how we interact with financial institutions and make managing our finances simpler, faster, and more convenient. In addition, FinTech can help make financial services more accessible to underserved populations worldwide.
The Importance Of FinTech In Traditional Banking System
FinTech is a combination of finance and technology. The word “Fintech” can be defined as companies using new technologies to make financial services accessible to consumers at lower costs (Vanguard).
This means an industry developed or improved products or services related to financial transactions through computer systems. This includes many products such as online banking, peer-to-peer lending, mobile payments, cryptocurrency exchanges like Bitcoin, crowdfunding platforms like Kickstarter, and equity crowdfunding platforms like CircleUp*, etc. (Harvard Business Review).
As traditional banking faces threats from FinTechs who provide faster transactions at lower transaction fees compared to legacy banks, these Fintech startups are here for the long haul. They will not only survive, but they will thrive as traditional banks try to keep up with FinTechs’ on-the-go, tech-savvy consumers.
Traditional financial institutions must recognize the importance of FinTech and implement it into their banking systems (Vanguard). These include:
Onboarding processes: Fintech firms like Simple and Betterment often spend less time onboarding customers because their systems are automated than traditional banks and require more documentation before opening an account (Bloomberg). Standardizing the process for both types of companies would benefit all parties involved.
Spending money at other fintech companies: Many fintech startups provide services that might overlap with older finance technology or product offerings. For example, data aggregation platforms like Quovo and Yodlee allow users to monitor their credit card activity in one place. Banks can integrate these services into their operations by either partnering with fintech companies or building the technology themselves (NYTimes).
Provide unique benefits: Fintechs are seen as an advantage to people who wish to gain access to financial products that legacy banks may not have available. For example, some fintech startups provide flexible interest-bearing deposit accounts similar to savings accounts but at higher yields because they are less regulated. This could also create banking competition between giants like Chase and smaller rivals like Chime Bank* (Bloomberg).
Also, FinTech typically has much shorter waiting periods for verifying users’ identities because they use advanced verification technologies such as artificial intelligence and machine learning. As a result, this is a much more effective solution than legacy banks that outsource their identity verification to third-party vendors (NYTimes).
By implementing these methods into their systems, traditional financial institutions can increase customer satisfaction and gain market share from FinTechs in the process. However, if these banks lag, fintech firms will eventually invade and disrupt traditional banking beyond repair (Vanguard).
Usage of FinTech In Traditional Banking System
The banking sector has been one of the most traditional and regulated industries globally. However, there has been a growing trend of banks adopting new technologies, known as FinTech, to remain competitive in recent years. FinTech is short for financial technology and refers to technology in the financial services industry.
This can include mobile banking and payments to Robo-advisors and peer-to-peer lending.
One of the main reasons banks are turning to FinTech is the growing popularity of smartphones and other digital devices. A recent study by Boston Consulting Group found that there will be 1.7 billion digital banking users globally by 2020, up from 1 billion in 2015. This means that banks need to find ways to offer their services through these devices to stay competitive.
Another reason for the growth of FinTech is the increasing demand for faster, more convenient, and more affordable financial services. In a survey of over 2,000 consumers conducted by PwC, it was found that 77% of respondents said they would be interested in using a financial product or service that is offered by a technology company such as Apple or Google. Furthermore, over 60% of respondents said they were willing to pay more for such a product or service.
There are many benefits of FinTech for both consumers and banks. For consumers, FinTech can provide a more convenient and affordable banking experience. FinTech can help banks reduce costs, improve efficiency, and reach new customers.
However, there are also some risks associated with the adoption of FinTech. One risk is that banks may not keep up with the fast pace of change in the industry. Another risk is that FinTech companies may start to compete with banks by offering similar products and services.
Despite these risks, the trend of banks adopting FinTech is likely to continue in the years ahead. As digital devices become more popular and demand for faster, more convenient, and more affordable banking services increases, we can expect to see even more FinTech innovation in the financial services industry.
FinTech is continuing to disrupt the traditional banking system. However, it is important to note that FinTech companies are not trying to replace banks but rather work with them to provide enhanced customer experiences and products. Banks have an opportunity to partner with FinTech companies to remain competitive and offer innovative services to their customers.