The banking and finance industry is undergoing a transformation. Developments in fintech will revolutionize banking in multiple ways by using innovation to boost efficiency, the leveraging of cloud technology, robotic process automation (RPA), and AI. From mobile payments to online lending, the way we bank is changing. Mobile apps are making it easier than ever to handle your finances on the go.
All of these innovations have changed our expectations for banking and managing personal finances. Consumers no longer need to wait in line at an ATM or visit a bank branch to check their account balance.
Introduction to FinTech
Fintech – short for financial technology – is a term used for any technology used to augment, streamline, or digitize traditional financial services. Banks use fintech for both back-office processes — payment systems, monitoring of account activity, management of fixed income products, capital markets trading, for instance—and consumer-facing solutions, like the app you use for checking your balance. Individuals use fintech for everything from tax calculations to dabbling in the markets. Businesses rely upon fintech for payments processing, e-commerce transactions, and accounting. And in the Covid era more and more businesses are turning to fintech to enable features like contactless payments.
Fintech has also drawn the attention of the regulatory community; in 2016, the United States Securities and Exchange Commission (SEC) announced their intention to conduct a study on FinTech – one of the first regulatory bodies to do so. And fintech has drawn the attention of the legal community and has led to the development of Fintech Law [ibid].
With the invention of new technologies such as Robo-advisors, chatbots, and even artificial intelligence (AI), the world of financial technology is changing at an unprecedented rate for the better.
The Role of Fintech in the Banking Industry
Before the advent of the Cloud and AI, the banking industry operated with slow and costly legacy systems that required large up-front investments to upgrade. This created bottlenecks in the turnaround time of the industry.
Investment banking has traditionally been a slow and laborious process, focused on low-value activities such as arranging finance for clients. However, as the FinTech revolution continues to take hold, investors and banks will benefit from greater efficiency.
The abundance of data available, and the evolution of AI, has made it possible to improve the way we understand and act upon information. As a result, investment banks and research analysts can analyze massive volumes of data and make accurate predictions.
Keep reading: Trends in FinTech That Are Here to Stay
How Can FinTech Transform Financial Services?
One of the most significant changes that investment banks have seen in recent years is the emergence of so-called Robo-advisors. Robo-advisors essentially use algorithms to make customers’ investment decisions, which should appeal to those concerned with investing their own money. The Robo-advisors also aim to give investors an entirely digital experience when managing their portfolios.
One of the best uses of Robo-advisors for financial institutions is when customers want to buy and sell a financial instrument. These customers typically make automated financial decisions at a massive scale, so Robo-advisors offer banks the chance to process transactions without dealing with the concerns and restrictions of the stock markets.
What Are the Benefits of FinTech?
Efficiency, both in terms of time spent and money spent, is a driving factor behind any investment in FinTech. By allowing businesses to perform tasks from anywhere, FinTech has made up for some traditional work hours, which are often clocked in by inefficient travel to an office. It has also shortened the working hours required to complete a task.
The introduction of cloud-based technology has also led to lower operational costs, reduced capital expenditures and heightened connectivity. This has allowed businesses to process transactions and further increase productivity by providing a dynamic service that is quicker, cheaper, and far more convenient for clients and their customers.
The disruption that FinTech investment has caused has empowered consumers and allowed them to take greater control of their financial lives. Financial services are now ripe for disruption and require a complete rethinking of how the industry operates, focusing on delivering best-in-class digital customer experiences.
This shift in how financial services are provided creates opportunities for the industry to reorient itself towards long-term profitability.
This is all good news for fintech providers who are adapting their business models to more quickly harness the potential of technology to offer consumers more benefits.