Arjun Singh Rathore
The banking industry has seen a major shift in recent years as new Fintech companies have emerged, offering innovative technologies and services that are changing how banks do business. Fintech is not only transforming the financial landscape and posing a threat to traditional banks that must adapt or risk being left behind. Fintech companies offer a broad range of services, from payments and wealth management to data analytics and investment banking. Banks must embrace the Fintech revolution to remain competitive in today’s market or risk being left behind. By leveraging the advantages of Fintech, banks can create new opportunities for growth and stay ahead of the curve.
Major Fintech startups such as Oxigen, MobiKwik, Paytm and Freecharge originated between 2005-10. But in India it was around 2009 and 2010 Fintechs started making inroads and the demonetization drive of 2016, was the turning point for Fintech companies in India. During the last couple of years, vast number of Fintech start-ups have started to mushroom in different segments to offer financial products and services, such as lending, personal finance management and investment management previously offered by the banks. According to reports, over 3,085 companies are currently (as of August 2023) operating in the Fintech segment in India. These types of non-banking financial firms are shaking the bank’s comfort zone, since banks now have new competitors to worry about. But although it is being heavily observed that Fintech firms are a major danger for banks, they are even bigger opportunity for banks as well. Whether Fintech will turn out to be a threat or opportunity depends entirely on banks approach and desire for cooperation.
Fintech is an umbrella term used to refer the use of innovative technology and software to offer financial products or services, such as payments and money transfers, investments, loan origination, and wealth management. Fintech is a rapidly evolving sector that has the potential to revolutionize the banking industry. Examples of Fintech applications include robo-advisors, payment apps, peer-to-peer (P2P) lending apps, investment apps and crypto apps. There are four main types of fintech services, each offering advantages and challenges for banks.
The first type is payment processing and money transfers. This type of Fintech allows customers to make payments and move money quickly and securely. Fintech companies enable banks to offer customers a more convenient and secure payment experience and access to faster money transfers.
The second type of Fintech is investments, which includes trading stocks, bonds, ETFs, mutual funds, hedge funds, etc. Banks can leverage this technology by giving customers a better way to manage their investments and handle the complexities of these markets.
The third type of Fintech offering is loan origination, which enables banks to streamline the process of originating loans. This technology allows customers to apply for a loan online and get approval in minutes rather than days or weeks.
Finally, the fourth type of Fintech offering is wealth management, which includes asset allocation and portfolio optimization services. This technology helps banks offer customers better advice and more personalized investment solutions tailored to their needs.
New digital financial technologies have the potential to shake up banking. Fintech services offer potential benefits to consumers and have made inroads into online lending and payment services. But the sector remains small and does not yet pose an existential threat to banks.
But the impact of Fintech has been felt across the banking industry, from payments and wealth management to investment banking. Fintech companies are disrupting banks by offering innovative solutions that are more convenient and user-friendly than traditional banking methods.
For example, many Fintech companies offer mobile payment services that allow customers to pay for goods or services with just a few taps on their smartphone. These services are often more secure and cost-effective than traditional banking methods, which is why they have become popular among consumers.
According to the latest data compiled by the National Payments Corporation of India (NPCI), which oversees UPI, in the last financial year 2022-23 the UPI platform processed a total of 83.76 billion transactions aggregating Rs.139 trillion, compared to 45.97 billion transactions worth Rs.84 trillion in financial year 2021-22. In October 2023 alone UPI transactions reached 11billion, with the potential to hit 20 billion per month in the next 18 to 24 months.
Fintech companies have made it possible for customers to make payments seamlessly, securely, and at a lower cost than traditional banks. Customers can make transactions using mobile wallets, contactless payments, and digital currencies, among others.
Fintech for banking has impacted myriad applications and transformed the way of assessing finances for customers. Its impact ranges from mobile payment apps like Square to investment and insurance companies. This profound impact of Fintech can also be seen as a potential threat to brick-and-mortar or traditional banks.
Fintech companies are disrupting the traditional investment banking model, by leveraging cutting-edge technologies such as Blockchain and Artificial Intelligence, they can provide more efficient, transparent, and cost-effective services than banks ever could before. At the same time Fintechs are creating new opportunities for banks to remain competitive in the digital world. Fintech solutions have enabled banks to increase efficiency, reduce costs, and improve customer experiences.
Additionally, Fintech companies are providing banks access to new technologies, such as data analytics, that allow them to gain valuable insights about customers. It also threatens banks because the technology is disrupting traditional banking models, but at the same frequency the Fintech companies are providing new solutions that allow customers to access services faster, more conveniently, and cheaper than traditional banks can offer. In addition, Fintech companies can provide personalized services tailored to customer needs. This makes it difficult for banks to compete with Fintech companies. As such, banks must adapt their business models and embrace Fintech solutions to remain competitive in the digital world.
The result is that banks are facing increased pressure from Fintech companies, which could lead to reduced profits or even become obsolete if they still need to embrace the Fintech revolution. With this in mind, banks need to invest in Fintech solutions and adopt digital strategies that will enable them to remain competitive and thrive in a changing landscape.
Fintech solutions have revolutionized the banking sector, by embracing the game-changing forces, providing banks with Increased Efficiency, Access to New Technologies, Cost Reduction, Improved Security, Enhanced Customer Experience, Increased Transparency, Improved Accessibility and Faster Payments. To stay competitive in this revolution, banks must embrace these technologies of the digital world and meet customer’s changing needs. Investing in Fintech solutions and adopting digital strategies is essential for banks to remain competitive and thrive in a changing landscape.
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