The Development of Financial Services: from Traditional to Technological Services

In general, financial services is a term referring to the economic services that provided by
the financial industry or financial market. It provides a different types of finance through various
credit instruments, financial products and services. The activities carried out in broadly by
financial services are investment, banking, and insurance. Throughout history, traditional
financial services that provided by traditional financial institutions have been playing in major
roles in the financial world. The traditional financial institutions are basically actors such as
private financial companies and governmental financial institutions such as banks who provide
financial services. Few examples of traditional financial services are banking services and
insurance services provided by the traditional financial institutions. Banking services are services
that regulated by the traditional financial institutions like banks to facilitate monetary
transactions, such as loans and deposits to people who have economic interests (Investopedia,
2020). As for insurance services are services that come from insurance companies provided to
people who need insurance coverage so that it can protect people from any catastrophic losses
(Investopedia, 2019).

All of that services are obliged to pay and must be paid to certain traditional financial
institutions through several methods such as people will get interest rates from contracts that they
have made with the financial institutions. Therefore, the use of traditional financial services by
traditional financial institutions can helps and facilitates people problems to overcome some
problems but it can also be a burden to some people because people have to pay high substantial
fee to those institutions. Throughout years, the development of financial services have been
evolving rapidly shifting from traditional channels to digital channels (Truong, 2016). The
contribution of thing called ‘internet finance’ is a fundamental technology that changed the
world economic gradually to the different of levels and brings a series of financial innovation to
a financial technology. Financial technology brings innovation to different aspects of the
economics, including the financial services such as banking services, payment services, and
financial regulations (Salmony, 2014 cited in Truong, 2016).

The term of financial technology or fintech is an integrating phenomenon between

technology platform and financial features that run by financial technology companies to
promote the efficiency of financial services and the innovation of financial products (Li et al,
2019). To simplify this, fintech are trying to change the traditional monetary transaction to
modern and technological transaction which will be cheaper and more effective by applying
high-tech devices in financial sectors such as mobile payments, money transfers, and loans
(Truong, 2016). The existence of fintech make people financial activities easier, cheaper, and
more effective because they don’t need to go to the financial institutions today if they have some
financial interests, they can just use a mobile payments with no charge of interest rate. Some
technologies that being applied to financial monetary transactions are mobile banking, peer-to-
peer payment technology, peer-to-peer lending (P2P), blockchain, and digital wallets. These kind
of technology will brings high efficiency to the financial transaction as well as help to reduce
cost for costumers (Truong, 2016).

One issue that is now a problem for financial services is about whether this kind of
financial technology will become a collaborative tools for the traditional financial institutions or
even become as a disruptive tools for traditional financial institutions. As we can see with the
existence of financial technology brings more benefit for costumers and less to the traditional
financial institutions such as banks. Many of fintech companies today show up providing modern
and technological financial services and competes with traditional financial institution such as
Upstart companies who become banking competitor that providing lending services through their
mobile lending platform with charge that are much cheaper loans and commissions than
conventional bank (Saksonova and Kuzmina-Merlino, 2017). The emerging of many fintech
companies with various financial services can be seen as a threat to traditional institutions such
banks. Moreover, there’s many depiction that this traditional financial institutions are considered
to be conservative and not flexible towards technology and cannot fulfill the needs their
costumers (Prawirasasra, 2018).

In my opinion, those traditional financial institutions must be willing to open and

integrate with some of financial technology to survive in competing with those financial
technology firms. It’s necessary for those traditional financial institutions in order to survive and
move forward on. On the fintech company side itself, also requires some traditional financial
institutions that owned by the state to create regulations that can protect fully of the right of
consumers. The collaboration between the fintech and traditional financial institutions can be the
solution to attract customers with cheap financial resources that can meet the needs of consumers
in a secure interaction which can protect them from hackers and fraudsters (Prawirasasra, 2018).
Recently the collaboration between traditional financial institutions and fintech services have
been growing for further development (Saksonova & Kuzmina-Merlino, 2017). This is a good
sign from the development of financial services today, however the institutions must be develop
a smart policy that can protect people from the risks of fintech so that fintech companies and
traditional financial institutions can further develop fintech innovation.

Through the explanation above, it can be concluded that both traditional and modern
financial services both have contributed to the financial world. Traditional financial services
provided by traditional financial institutions tend to be have more expensive cost because of all
of that services have charge fee to pay for customers who made a contract with those institutions.
But today, there’s a way that costumers don’t need to pay high substantial fee because there are
cheaper and more effective ways to do financial activities. The emergence of fintech change the
world economic gradually to the different levels of innovations and make people financial
activities easier, cheaper, and more effective through the use of mobile payment which is one of
the innovations of fintech. One issue that is now problem is the emergence of fintech seems as an
disruptive tool that can be threating traditional financial institutions such as banks. There are
indeed some banks that see this financial services development as a threat but there are also those
who see this as an opportunity to make a better financial services. In my opinion, one of the
solutions is that traditional financial institutions must be flexible by seeing this as an opportunity
because otherwise they will not be able to survive in a world that has been surrounded by
technology.

References:

Investopedia. 2019. Financial Services Sector. [Online] Available on: www.investopedia.com.

Investopedia. 2020. Financial Institution (FI). [Online] Available on: www.investopedia.com.

Li, Ya-Ning et al. Which is More Advantageous in Financial Technology and Traditional
Finance? Evidence from JD Finance. Atlantis Press.

Prawirasasra, Kannya P. 2018. Financial Technology in Indonesia: Disruptive or

Collaborative?. Creative Commons Attribution License.
Saksonova, S and Kuzmina-Merlino, I. 2017. “Fintech as Financial Innovation – The
Possibilities and Problems of Implementation”. European Research Studies Journal. Latvia:
University of Latvia.

Truong, Oanh. 2016. How Fintech Industry is Changing the World. Kokkola: Centria University
of Applied Sciences.