Fintech and the new dimension of modern banking services

You must have heard the word fintech (financial technology) if you are someone planning to build up a career in finance or already working there. Generally, it is the use of new applications, processes or products in the financial service industry. It has changed the industry game with its transformative and disruptive innovation.

Back to its story, financial technology has been playing a pivotal role in the financial sector since the 1950s. It introduced a credit card instead of cheque & cash in banking in the 1950s. ATMs introduced in the 1960s that replaced tellers and obviates the need to wait in line in the bank. In the 1970s, the stock market started trading through exchange trading floor instead of floor trading. Financial sectors have started using computers and software in increasing numbers since the 1980s. All these developments contributed to the innovation of online stock brokerage websites, e-commerce business and retail stock brokerage model in 1990s. There PayPal was introduced in 1998.

Financial technology continued to evolve over the years. However, it just exploded over the last five years. At present, fintech investments went from $3 billion to over $12 billion from 2013 to 2014. In 2015, it surpassed $19 billion. Moreover, the rate of investment is growing 45% annually; there $13.7 billion was invested in the start-ups in the last year. Today, there are between 1,500 to 2,000 significant players in the industry globally.
Moreover, significant investments were made in the banking sector. It has changed the perception of consumer and institutional banking and investing. Technology such as mobile banking, virtual banking, and crypto changed the way financial services are offered. Both companies and customers welcome this new form of assistance. Companies like Amazon, eBay, World markets and others have been using PayPal as one of its primary payment methods. Soon cryptocurrencies will take its place, can be assumed as many startups start to adopt it.
This situation is creating keen competition for banking sectors. Startups like PayPal, square and lending club are successfully making their position in the competitive market. Banks have been facing tight competition in lending and borrowing. Traditionally, loans and financing involve taking deposits, extending credit and charging interest. However, some startups have found ways to squeeze these margins by offering a better deal to depositors and borrowers by adopting online model “peer to peer.” Besides, these startups do not have to follow all the regulatory rules that big financial institutions have to maintain.

Startups like Lending Club and Prosper in the US and Funding Circle and Zopa in the UK have been very successful by adopting this model. They have attracted significant valuations doing hundreds of millions of dollars and pounds in loans. And it creates keen competitions for banking sectors in the market. Consequently, Banks get to decide whether they will build their capabilities or seek out FinTech partners to help drive innovation initiatives in their financial services.

This opening has provided an opportunity for FinTech firms to offer new applications either directly to customers, or in partnership with large financial services institutions. Some banks are starting to recognize the skill of many of these startups. SunTrust Bank acquired online lender First Again in 2012, later re-branding it Lightstraem.
Blockchain has added another dimension in the financial transactions. It has transformed banking services. It decentralizes financial management from a central authority to a widespread network of computers. It breaks down financial services into encrypted packets or blocks and then adds to the chain of computer code and encrypt them to enhance cybersecurity.
It facilitates transactions through the use of bitcoin. It signs the operations of the involved parties using the software then adds it’s to the blockchain which is a long string of code that records all the activity. On the business side, Companies like Sweden's iZettle and Square in the US are making it easier for small businesses to accept card payments online using bitcoin. On the other hand, for consumers, Apple Pay and bitcoin are offering new ways to pay for the goods.

This technology has replaced banking service by making money transfer to abroad easier, faster and cheaper. For example, Transfer Wise uses peer to peer to match people with others sending money in the opposite direction thereby saving fees. World Remit specializes in sending money to mobile wallets in the emerging market. It is an electronic device or medium that enables an individual to make an electronic transaction. To catch this market, 22 banks from around the world including JPMorgan, Credit Suisse and Barclays have formed a coalition to develop common standards and uses for the blockchain in the banking platform.

The most notable change in the financial sector over the last few years was perhaps the rise of crowdfunding. It lets ordinary people fund projects online either by buying equity in the project or by lending money. It indeed reduced the need for a bank loan and investment bankers. In the US, platforms like Kickstarter and Indiegogo lead this sector.
Another innovation that has defined the banking industry newly is challenger banks. You do not need to go to the bank for technological excellence. Challenger banks such as Metro Bank, for, atom Bank, Mondo, and Starling are planning to establish no branch network and operate primarily through mobile phone apps. They prioritize technology.

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