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Fintech and Disruptions-An Impact Assessment
Fintech and Disruptions-An Impact Assessment
Review Article
Abstract
Purpose: Since last few years, Financial Institutions have emerged as a new arena with technological up gradation. Thus, the paramount purpose of this
study is to demonstrate the disruptions from Fintech practices on the traditional financial institutions.
Design/Methodology/ Approach: The study is mixed of exploratory and descriptive research in nature. The data has been collected from the global
fintech report for the three years from 2013 to 2017 and analysed using OLS regression analysis in SPSS and Gretl.
Finding: The traditional financial institutions have disruption priory on savings and number of financial accounts because of Fintech practices; services
like Mobile money account, Payment of utility bills, usage of mobile and internet to access financial institution account and also digital payments. In line
with this, the supporter of Fintech companies such as Venture capitalist, private equities have positive, while merger & acquisitions has negative impact
over GDP of Asian countries.
Originality/ Novelty: The Present research has broadly considered the impact of Fintech over traditional financial institution and GDP of selected Asian
countries by analysing challenges, investment and reasons behind disruption.
Keywords: Fintech, Traditional Institutions, Asian Countries, Disruption, Regression.
© 2019 by Advance Scientific Research. This is an open-access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)
DOI: http://dx.doi.org/10.22159/jcr.06.06.13
INTRODUCTION financial institution, with its rapid development along with disruptive
impact in traditional financial institutions.
Financial institutions are established to accomplish a paramount goal To better understand how traditional financial institutions, including
in each and every country, in a continent like Asia where the financial banking services, insurance companies and asset managers, are
technology is becoming inexorable to follow and its impact is having disrupted by emerging Financial Technologies(Fintech), Some of the
effect from most developed countries of Asia to the least developed. Its Articles, Books, Journals related to this, have been analysed.
performance and success will lead the country’s economy to prosper
and to contribute to the world economy. Traditional financial LITERATURE REVIEW
institutions are in the era which, they have to change with current
technology, the new proposition of financial technology called Fintech. Cornett, Adair, & Nofsinger, (2015) defined Financial Institutions as
It is a finance combination with technology or computer-based any institutions that perform the essential function of channelling
application to make and finance services accessible and more flexible funds from those with surplus funds to those with shortages of funds
to the customer with or without the intervention of financial [like the traditional one which does not use high-tech in doing so such
institutions. as Fintech uses]. These institutions are traditionally made without the
There is no doubt that traditional financial technologies have involvement of finance technology to fulfil the financial need in any
undergone a huge transformation throughout the last decade, and the institutions.
new types of financial technologies, Fintech represent a currently According to Cornett et al., (2015) there are six types of financial
innovative and emerging field, which has attracted attention from the institutions which allows financial services flows from suppliers of
media as well as investors.A study by ‘’Fintech Disruptor Report funds to demander of funds. These institutions are ‘’Commercial Banks,
(2017), found that financial institutions estimate that up to one-third thrifts, insurance companies, securities firms and investment banks,
of their current revenues could be at risk from Fintech innovations’’. finance companies, Mutual Funds, and pension funds’’.Kashyap (2016)
This impact will make traditional institution to collaborate with proved that ‘’financial institution is in the nascent stage of digital
Fintech institutions (for not being out of functioning) or they also can disruption’’ [which is the positive impact to early adaptors of Fintech
become Fintech solution provider to stay active. The nature of financial services to satisfy customers need and negative impacts to those
services in banks, insurers and asset management companies are being traditional institutions which did not try to adopt Fintech (Chishti and
redefined by technologies like artificial intelligence and crypto Barberis 2016, p.226).
currencies (KMPG, 2015). Fintech was a weak signal to the financial institution but with its
The Financial Services sector is transforming with the innovative rapidly rising with impactful disruption in traditional financial
products and solutions. Customer expectations have primarily driven institutions and it is a dominant area where all financial institution of
those innovative ideas and also continued pressures on cost and any country must look upon. With its dramatics rising in all over the
varying regulations have great impact on traditional world from European countries to western countries, and to Asian and
services.Addressing the organizational response to Fintech is proving African countries. Sleeves (2016) finds that ‘’the global village that
challenging to many institutions. Fintech is a weak signal to the Fintech enables brings to market and consumers closer supports new
businesses and reduces reliance on the government in the process’’ [of practices (Gomber et al., 2017). Ironically it was proved long back that
any country which involves in the so-called Fintech services] the processing power of computer has more than doubled every 24
The Board of the International Organization of Securities Commissions months. And its cost of processing has seen a reduction of 10 billion-
(IOSCO) (2017) with their IOSCO committee on Emerging Risks (CER) times in the first 50 years of the computer era, started emerging in
provided report on the evolution of financial technologies and they 1950; It have been noticed a dramatic elevation in memory power of
conducted survey of Distributed Ledger Technology (DLT) along with memory cards in the past few decades; a laptop having one terabyte of
World Federation of Exchanges (WFE). In the same vein, Financial flash storage, which is a growth of 100,000 times in 30 years; and a
Institutions need to quench the thirst of innovation in order to single smart phone now has more computing power than NASA had in
withstand the changing digital environment. The study has focused on 1969(Moore, 1965). Another recent report also discussed about the
the Innovative business models and emerging financial technologies risks and challenges of these emerging technologies like cross border
which would transform entire financial industries and pointed out the risk, malpractice and fraud by the platform and the users.The Financial
increased growth of computer processing power. While others studies industry is growing rapidly with increasing risks and challenges. They
found the current scenario in digital finance along with their potential have provided the figure of global Fintech investments from 2005 to
future by using multi stage process. The results reveal that evolution of 2016 (IOSCO, 2017).
financial technology has impact over traditional performance and
Source: The Board of the International Organization of Securities Commissions (IOSCO) (2017)
Figure 1: Growth of Fintech Investments Till Today
globally to all the continents, which is affecting the current position of
RecentlyEY Fintech Adoption Index (2017) found that ‘’Fintech the world financial-economic.The survey reveals that the average
institutions have reached a tipping point and are poised for adoption rates across twenty (20) biggest markets is 33%, which is
mainstream adoption from 20 biggest markets across the globe’’. And between USA (33%) and South Africa (35%), the highest in China
they find out that those Fintech institutions share two characteristics (69%) and the lowest is Belgium and Luxemburg with (13%). After the
around the globe which are a ‘’laser-like focus on the customer survey predicts that ‘’the primary factor in such a high adoption is that
proposition and a willingness to apply technology in novel ways’’. The Fintech
institutions excel at tapping into this tech-literate but
study also approved that ‘’consumers are drawn to Fintech services financially underserved populations’’ EY Fintech Adoption Index
because of its, simpler, more transparent and more rapidly to (2017).
personalised’’. And it shows that the awareness of Fintech is going
He, et.al, (2017) also assessed about the implications of Fintech on an Need to adapt with digital innovations, on par with the
array of financial services and promotion of stability to International changing environment.
Monetary System.The Research found some solutions of Fintech in
customer needs and services, security, privacy and competitive As well as, the emergence of Fintech companies has drawn much
landscape changes. This Research primarily focused on cross boundary speculation about their potential to disrupt incumbent financial
changes.Beforehand,the future of Fintech said that the traditional institutions and take as much as 20% of their earnings by 2020. While
financial institutions are competed by Fintech start-ups by offering time will tell about these predications, one emerging reality is that
customer-centric services which serves better speed and flexibility. Fintech is creating a new ecosystem where the structure has
And they are vigorously growing around the world.“Fintech companies incumbents, start-ups and tech firms forming alliances, partnerships,
are involved in a process of ‘intermediation through innovation’: Big and investments (Oshodin et al., 2017). The future financial institutions
data, Block-chain, robo-advisors, Internet of everything(IOE)”, must operate in a very different way from today’s structures if they
Nicoletti,2017. Hence, the financial services industry has to be need a competitive advantage by satisfying demands of customers
reshaped in order to compete the current digital ecosystem. which have high volatility with the changing world. These types of
In this research, the two critical points for traditional institutions due institutions have to provide improved performance and user
to disintermediation are discussed. experience at lower cost(Margaris,2016).The below figure shows the
evolution of financial services from old to new.
Losing market shares due to the emergence of various new
start-ups.
Source: Evolution of the financial services industry - c/o FinTech by Avinash Swamy-WIP market specialist
Figure 3: Evolution of Financial Services with Fintech (Swamy 2015)
financial institutions were in practices and how this impact will lead to
Although the researches have been done on financial technologies and future perspectives. The objectives of this project are:
its risks on traditional financial institutions, there is a gap in finding
future potential problems. And worldwide analysis is not done till now. To demonstrate the disruption from Fintech, and the
And there is a requirement to develop a more comprehension of the traditional financial institutions no performance in today
risks in-built in platform-based Fintech. There is dearth of research on technological scenarios. And to show how the progress of
the positive and negative impact of Fintech in future perspectives and financial institution is leaning in the area of Fintech.
relation to the traditional financial institutions. Thus, there is no study To demonstrate whether the future of Fintech will make the
has been conducted to detail how and what Fintech innovation is traditional financial intuitions no performing institutions or
having disruption and impact on the traditional financial institutions. inadequate to meet current need of clients. And the analysis
Thus, present research empirically address the Asian countries’ of countries GDP growth in Fintech area.
financial industries and about the disruptions what they have faced till To demonstrate the investment in Fintech industry and the
now due to Fintech.The Future potential problems, the traditional pros and cons while looking in partnership with traditional
financial institutions could face, will also be discussed in this research. financial institution practices.
The major aim of this project is to demonstrate how disruption from
Fintech has dramatically came to change the way that traditional
METHODOLOGY The econometric result of the first model of regression analysis, where
saving is taken as dependent variable and paid utility bills, received
The paramount purpose of this study is to demonstrate the descriptive digital payment, mobile money account, use mobile or internet to
and exploratory study between traditional financial institutions access account, made or received digital payment, as independents
andFintech institutions. And to identify how disruption from Fintech Variable. This analysis shows that we reject null hypothesize since the
has dramatically come to change the way that traditional financial significance is 0.003 which less than the 0.05 and we accept alternative
institutions were in practice.The research design adopted for this hypotheses. As in general we often reject the null hypothesis if this
study is the exploratoryand descriptive research design under which, chance is smaller than 5% (p < .05) and this is universally accepted for
observation on survey of existing researchis explored and the any hypothesis testing. Means that, the independent variables have
described the relation between Traditional and fintech institutions. positive statistical significance and correct on the independent
The target population for this study is the evolution of Fintech industry variables on saving. The R and R 2 shows that we describe the
into the global financial sector around the world, though the sample of independent variables by the dependent at 1, which means at 100% of
the present study is emerging economies like the Asiancountries. The resembling level.
sample selection is based on economically related seven countries will
be selected in Asia. For this study, the sample size for data collection is Table 2: Regression Result on Coefficients
based on seven Asian countries viz., Nepal, Malaysia, India, Indonesia, Coefficients
Thailand, Philippines and Vietnam based on the likelihood or relevance
on the GDP growth; countries overall income level and Fintech Model Unstandardized Standardized T Sig.
practices evolution in those countries. The sample frame adopted for Coefficients Coefficients
this study is at the level of which the disruption of Fintech technology B Std. Beta
is happened; where the adoption of Fintech is happening, and at which Error
level, the lower or middle-income countries can be described by the 1 (Constant) .047 .001 65.780 .010
evolution of Fintech.The data sources for this study is guided by
MPINt .374 .006 .350 62.399 .010
secondary sources, where relevant and reliable sources of data are
collected from World Bank data (2015-2017)and other relevant DGIpYm .342 .005 .641 62.283 .010
websites such as Global Fintech report (from 2013 to 2017), World RecdPYM .705 .007 .945 104.331 .006
Fintech Reports (2017) and PWC Global Fintech survey (2017).World MMA -2.864 .015 -.982 - .003
bank data were used to access data from traditional financial 188.682
institutions data with Fintech and non-Fintech practices (2015-2017)
PU -.047 .001 -.072 -40.501 .016
and selected countries’ GDP percentage growth (from 2013 to
2017).Global Fintech report were used to access Fintech investment on a. Dependent Variable: SV
private equity, venture capital merger and acquisition in Asia (from
2013 to 2017). The World Fintech Reports is used to access the data on In the coefficient result of the analysis,the R and R 2 have complete level
pros and cons of Fintechwhile partnering with traditional financial of values (1.0000), which indicate that 100% of variables in saving of
institution (from March 2017). And the PWC Global Fintech survey is traditional financial institutions can be explained by Fintech variables
used to access data on the incumbents’activities believed are already such as paid utility, received digital payment, mobile money account,
conducting with Fintech companies (from 2016 to 2017). and made or received digital payment. In another way, good
The dependent variables in this research study were based on Saving resemblance can be highly due to the strong relationship between
and financial institution account, whereas the independent variables dependent and independent variables.
were based on eight predictors viz., paid utility, mobile money account, The standardized coefficients,Beta of independent variables shows
made or received digital payment; debit card& credit card payment, that, received digital payment has the greatest impact on the
paid utility bills anduse of mobile phone or internet to access financial dependent variables since it is 0.945. Mobile or internet usage
institution.Data analysis process is a study on quantitative data. The (0.350)and made digital payment (0.641) have the minimum level on
information for this research are collected and then coded into the outcome on saving. And mobile money account (-0.982) and utility
computerized analysis method (in excel and then Tableau for paid (-0.072) has negative effect on the outcome the dependent
representation), through which information are entered in statistical variable.
software like IBM SPSS for linear regression analysis on traditional The significance levelof the independent variables isimpacting savings
financial institution data with Fintech data. Then Gretel is used to by usage of mobile or internet (0.10) and made digital payment (0.10)
analyse the ordinary least square (OLS) regression model on countries have the same significance level; received digital payment (0.006) and
GDP growth with Fintech investment. mobile payment (0.003) and utility paid (0.16).
Therefore, the result from the table 1 of regression analysis is
Data Analysis and Interpretation on the Results following alternative hypothesis implying that the linear effect from
paid utility, received digital payment, mobile money account, usage of
In this section interpretation of data analysis has been done with the mobile or internetto access account, and made digital payment on
results obtained in regression analysis. saving at financial institution cannot be rejected.
1) Regression Analysis
Table 3: Financial Institution with 3 Predictors
Table 1: Regression Result on Saving with 5 Predictors Model Summary
Model Summary Mo R R Adjus Std. Change Statistics
Mo R R Adjus Std. Change Statistics del Squ ted R Error R F df df Sig.
del Squa ted R Error R F df df Sig. are Squar of the Squa Chan 1 2 F
re Squar of the Squa Change 1 2 F e Estim
e Estim
re ge Chan
re Chan ate Chan ge
ate Chan ge ge
ge
1 .92 .855 .710 12.93 .855 5.88 3 3 .090
1 1.00 1.00 1.000 .0004 1.00 91081. 5 1 .003
0a 0 0 0 316
5a 500 9
a. Predictors: (Constant), PU, MPINt, RecdPYM, MMA, DGIpYm a. Predictors: (Constant), MIFIA, PUB, DC
b. Dependent Variable: SV b. Dependent Variable: FIA
The econometric result of the second model of regression analysis, indicate 100% of variables in traditional financial institutions account
where financial institution account is taken as dependent Variable and can be explained by 100% correlation with Fintech variables.
debit card payment, paid utility bills and usage of mobile phone or the The standardized coefficients, Beta of independent variables shows
internet to access a financial institution account as independents that; debit card has the greater impact on the outcome on financial
Variable. This analysis shows that toreject null hypotheses since the institution account. And paid utility bills and usage of mobile or
significance of 0.090 is more than the 0.10 and to accept the alternative internet to access a financial institution account had negative
hypotheses. Therefore, the result from the regression model is coefficients. Therefore, the result from the table 3 of regression
alternative hypotheses. analysis is alternative hypothesis havinglinear effect from debit card,
paid utility bills and usage of mobile or internet to access account on
Table 4: Regression Result on Coefficients no. of financial institution account cannot be rejected.
Coefficients
Model Unstandardized Standardized T Sig. Table 2: Model Overall Summary
Coefficients Coefficients Sl. Dependant R Predictors
No variables Square
B Std. Beta
Error 1 Saved at 1.000 Paid Utility bills, Received Digital
financial Payment, Mobile money Account,
1 (Constant) 54.928 19.976 2.750 .071
institution Mobile or Internet to access account,
DC 2.090 .732 1.974 2.853 .065 account Made or Received Digital Payment
PUB -.745 .358 -.524 - .129 2 Having 0.855 Debit card, paid utility bills and the of
2.081 Financial used a mobile phone or the internet to
MIFIA -2.781 1.580 -1.209 - .177 institution access account
1.760 account
a. Dependent Variable: FIA
2) Data Analysis on Fintech in Partnership with Traditional
We can see in the second regression model that the R (0.925) and R 2 Financial Institution
(0.855), has more than 85% level on the dependent variable, which
20%
10%
0%
Figure 4: Activities incumbents believe consumers are already conducting with Fintech Companies
started transferring funds with the help of Fintech companies. On the
This % denotes the customers already using Fintech for some of the other side, wealth Management is a service with least percentage that
above financial activities. As per the table, the higher percentage of customers have started conducting with Fintech, reducing the usage of
customers from financial institutions started using payments from traditional financial institution.
Fintech companies rather than the traditional financial
institutions.68% of customers from different financial institutions
50.00%
40.00% 31.80% 30.00%
30.00%
20.90%
17.30%
20.00%
10.00%
0.00%
Figure 5: Key Reasons Fintech partner with Traditional Financial Services Firm(%)(2017)
visibility by partnering with the established brand name. Secondly,
This % denotes the Fintech that have given a rating of more than 5 on a they would achieve the economies of scale thereby reducing operating
scale of 1-7 for each reason. The Maximum number of Fintechsaid expenses and thirdly, they could gain the customer trust if they partner
that the major reason why Fintech companies want to partner with with renowned traditional institutions.
traditional financial institutions is that it would provide enhanced
22.70%
Aegis Implementation
61.80%
IT Engagement
37.30%
Cultural Fit
Business Engagement
37.30% Shared Investment
47.30%