Financial Technology

-By Ritu Choudhary

 Fintech
Fintech, the word, is a shortened combination of “financial
technology.”
Financial technology is used to describe new technology that seeks
to improve and automate the delivery and use of financial services.
It is composed of specialized software and algorithms that are used
on computers and smartphones.
Fintech refers to the integration of technology into offerings by
financial services companies to improve their use and delivery to
consumers.
• Companies in the finance industry that use fintech have expanded
financial inclusion and use technology to cut down on operational
costs.
• Examples of fintech applications include robo-advisors, payment
apps, peer-to-peer (P2P) lending apps, investment apps, and
crypto apps, among others.
• You likely to use some element of fintech on a daily basis. Some
examples include transferring money from your debit account via
your iPhone, sending money to a friend through Paytm, or
managing investments through an online broker.
Evolution of Fintech
 Fintech In Banking Sector
Bank is a financial institution in charge of running a payment system, which is
authorized to accept deposits and provide credits, assist with investments.
A banking system is a collection of institutions that provides us with financial
services.

Types of banks

Commercial Banks
Commercial banks are a part of the money-creating system of the economy.
They accept deposits from the public and lend out part of these funds to those
who want to borrow. The interest rate paid by the banks to depositors is lower
than the rate charged from the borrowers. This difference between these two
types of interest rates, called the ‘spread’ is the profit appropriated by the bank.
• Investment Banks: These banks majorly focus on corporate clients dealing
in complex services such as mergers and acquisitions or underwriting.

• Central Banks: Central banks do not deal with the public or corporations.
They are not market-based. Its primary responsibility is to control inflation,
regulate monetary policy, oversee currency stability etc. India got its central
bank in 1935. Its name is Reserve Bank of India. It controls money supply
of the country through various methods, like bank rate, open market
operations and variations in reserve ratios. It acts as a banker to the
government. It is the custodian of the foreign exchange reserves of the
economy. It acts as bank to the banking system.
Effects Of Fintech On The Banking Industry:
Fintech and banking industry sector includes the following
technological trends:
• Cloud technologies and big data (Bigdata). Cloud technologies
provide access to data without installing special applications on
the device, which allows banks to offer their products anywhere in
the world by centralizing services on the network. Big data, in
turn, provides customers with personal target offers based on the
analysis of heterogeneous and fast-moving digital information, the
sources of which are the Internet, corporate document archives,
readings of sensors, devices, etc.;
• API (Application Programming Interface), a software intermediary that
allows two applications to talk to each other. APIs are an accessible way to
extract and share data within and across organizations. Every time you use a
rideshare app, send a mobile payment, you’re using an API.

• Social media and mobile communication with special applications.

Integration of the banking business with social networks allows obtaining
information about customer preferences for the purpose of using it when
proposing new financial products, establishing trusting relationships with
each bank's client, accelerating the implementation of blockchain
technologies in relationships with customers.
• Through Omni channel banking the customers' troubles can be
resolved very fast. Using the Internet, they can avoid in-person
interactions in bank branches and get to their point quickly and
efficiently. Delegating a part of the tasks to digital tools such as
chatbots will save costs and provide customers with more
personalized service by digital financial services. This approach is
flexible and adapted to customers' unique needs. As an extra
advantage, you can find the opportunity to improve your bank
experience and get much higher loyalty from your customers,
leading to fewer drop-offs and better conversions.
• Payment systems are adjusted with artificial intelligence.
Analyzing customers' operation history, spending habits, and
behavior, we can predict their activity in the future and suggest
payment methods with reduced fees. One of the most significant
rends is voice-activated transactions. They require special
approaches to security and verifications, which now are one more
substantial area for growth. The most valuable resource now is
financial data. Integrating payment solutions with other systems
can help understand shopping behavior deliver relevant
recommendations, increase retention and deliver better
experiences.
• Open banking is the ability for third-party providers to
access customers' financial information securely. There is
a standard format for the process, specified by open
banking, available only with the customer's consent. It can
help companies get an accurate picture of their
consumers' financial situation to offer their services. Also,
it allows consumers to get a clear picture of their finances.
• Raising the level of expectations for the services provided,
including financial. The consumer becomes more and more
focused on constant updating and acceleration of processes,
greater availability of technologies and greater convenience of
services in the conditions of obsolescence and limitations of
traditional financial services both in form and in essence. The
development of information processing technologies has
determined the development of such fintech segments as
blockchain, P2P lending, online scoring, algorithmic trading, etc.
• The spread of the mobile Internet, leading to the fact that the
focus of the bank's customer acquisition strategy is shifting from
opening another branch to creating online services and supporting
the mobile version of the site.
• The desire for innovation, increased requirements for ease of
use of services, quality and speed of obtaining information,
characteristic of the largest generation of millennials in world
history (born in the period from 1980 to the early 2000s), is a
powerful catalyst for changes in the financial sector.
• Banking legislation, for which consumer rights are always a
priority, but their protection does not impede the implementation of
innovations and flexibly adapts the rules to the requirements of
the financial sector (in the UK, Singapore, Australia). On the
contrary, in other countries, the financial sector is highly regulated,
which hinders the development of the financial services industry.
• The success of tech companies in other sectors of the
economy (retail, entertainment, etc.). The emergence of
successful companies that have significantly changed their
markets and offered more competitive products and services has
sparked the interest of entrepreneurs, including in the financial
sector.
Why Fintech And Banks Should Work Together

The way people use financial services and banking has evolved. Technological
changes of recent times provoked changes in people's banking behavior and
now we already see the changes, which indicate the significant fintech’s impact
on the banking industry. Let's list several of them:
• The use of mobile devices increased a lot. According to Pew Research
Center, 81% of adults in the U.S. own a smartphone, and more than 50%
own a tablet. So any business who wants to have a good connection with
their customer should consider developing their products and offers mobile-
friendly. That means that we can reach any information quickly from a device
that has an Internet connection. Same with the banking details, which bank
clients can access from pretty much anywhere. And a great advantage is that
nowadays, the updates of information don't need to settle overnight:
transactions are speedier, and the information is the most up-to-date.
• More services are available online. Some people still prefer visiting a
physical bank branch to maintain financial services. Others are already used
to transferring money between their accounts, deposit checks, and track their
transactions online. In the beginning, the banks offered some perks to get
their customers to use online services primarily. Now lots of customers
consider online services more convenient as they can take place at any time.

• Great attention to security issues in FinTech is called to emphasize that

this new approach to banking is safe and this cooperation is reliable, and
customers' private financial data is protected. Traditional banking at the time
might not invest a lot of money and resources into focusing on data
protection and raising attention to making customers aware of the necessity
to decrease the vulnerability.
Impact Of Fintech On Banks.

• According to a Marketforce LIVE experts, UK banks see fintech startups as a major threat to
the business models of traditional financial companies and institutions. To find out the
attitude of banks to fintechs, about 600 representatives of the financial sector were
interviewed.
• According to 81% of respondents, quality of service outpaces customer trust in a brand in
the race to acquire and retain users.
• 79% of participants believe that fintech startups have the most attractive brands.
• 59% see fintechs as a global competitor to banks that can replace traditional forms of
providing financial services.
• At the same time, 46% of the respondents see a big threat in fintechs, since in order to
compete with them, it is necessary to optimize the business model in the near future.
• Banks are inferior to fintechs in terms of speed of service provision, convenience and
simplicity, as stated by 71% of survey participants.
• 30% of respondents believe that fintechs will run banks, and 31% believe that fintech will
benefit traditional financial institutions.