Banking and Technology: Exploring the Rise of FinTech

FinTech, once behind-the-scenes tech for banks, is now in the spotlight for its advanced banking service integration services.

At the intersection of finance and technology lies FINTECH, a digitization of financial services that saw an upward spiral when the whole economy was spiralling downward due to the pandemic, Covid-19. 

Since then, the impact of FinTech has only been seen and felt in ways not imaginable before. It is reshaping each money-related model the market has seen and interacted with, such as payments, lending, investments, wealth management, insurance, etc.

Technology has disrupted almost every sphere of the market, and finance is one aspect of it. Innovation made possible by technology promotes economic growth and increases economic resilience.

FinTech, which formerly served as a back-end system technology to support banks and financial institutions, has recently gained prominence, thanks to its cutting-edge technology for seamlessly integrating various banking services. 

What is FinTech?

Financial Technology (FinTech) is the use of advanced technology to deliver innovative and inclusive financial services. 

These technologies, which help in streamlining processes related to financial services, are used in areas such as online banking, big data analytics, blockchain, cryptocurrency, artificial intelligence, etc.

Any business adopting FinTech-based models can be said to further its financial development and embrace digital transformation. The adoption of FinTech has transformed the Banking landscape. Whether it is the shift towards Digital Banking, Payment Solutions or Open Banking, FinTech has disrupted Traditional Banking.

How is FinTech different from Banking?

The term "FinTech" encompasses the use of technology to improve and develop financial services. The term "Banking" refers to traditional financial establishments that provide a range of financial services.

It is obvious that leveraging the power of Technology has an upper hand over the traditional way of working inside the system to accelerate the manual processes. Not to mention the ability of FinTech-based products and services to rapidly develop and deploy new financial services. On the other hand, the banking system faces more operational irregularities and regulatory constraints. 

Moreover, FinTech-based services are tailor-made to serve a specific niche or segment of financial services, whereas Banking encompasses a wide range of services such as loans, mortgages, savings accounts, etc. 

Also Read: Create an Efficient and Highly Secure FinTech App, Here's How

The Five Elements of the FinTech Ecosystem

Consumers in the financial business profit from FinTech ecosystem collaboration. Following are the five elements of FinTech:

1. Technology

Undeniably, Technology serves as the foundation of FinTech and encompasses developments in fields including Big Data Analytics, Cloud Computing, Data Analytics and Mobile Banking, etc. These innovations enable the development of innovative financial solutions while enhancing the efficiency, responsiveness, and accessibility of financial services.

2. Innovation

Innovation is the primary focus of the fintech industry. Peer-to-peer lending, robo-advisory, digital payments, lending platforms, and decentralised finance (DeFi) are just a few examples of the advancements that fall under this category.

3. Customer-centric approach

The FinTech industry leverages technology to deliver seamless services such as user-friendly interfaces, frictionless transactions, and personalised recommendations, for the satisfaction and experience of the consumer are highly valued, and financial solutions are offered with the goal of understanding and resolving customers' financial problems.

4. Financial Inclusion

The inclusion components of FinTech include facilitating microloans, enabling digital payments for the unbanked, and offering investment options to a larger spectrum of people. These actions reinforce the industry's stance on promoting financial inclusion.

5. Regulatory Environment

Fintech companies operate within a regulatory framework that safeguards consumer protection, security, and stability. They are required to comply with regulations concerning data privacy, anti-money laundering (AML), know-your-customer (KYC) requirements, and financial regulations.  

FinTech and the Digital Transformation

As people around the Globe found themselves confined to their four walls of the house at the onset of Covid-19, the need for digital connectivity grew stronger. This disrupted the traditional Business models and the fast-growing integration of technologies, and its subsequent adoption led to the rise of FinTech and Digital Transformation. 

As an enabler of Digital Transformation, FinTech focuses on offering intuitive services and applications for its customers to manage their finances conveniently. It also helps businesses drive operational efficiency and apply cost savings techniques. With enhanced efficiency and automation, it becomes easy for businesses to improve processes and mitigate risks. 

For example, the integration of automated chatbots in Business websites assists in managing clients’ enquiries. 

Also, the partnership between traditional Banking institutes and technological-driven FinTech has enabled the development of fast, responsive, and effective customer services. Open banking, which involves securely exchanging client financial data between banks and outside providers through application programming interfaces (APIs), is made possible by FinTech.

Thus, FinTech propels the financial services industry towards a digital future and is a driver of its digital transformation.