The mass digital transformation has impacted almost all of the world’s industries, which led to the change in our daily lives. Some of it has seeped in gradually. Some came in with a bang. Not long ago, homeowners, company owners, and investors had to walk to the bank to apply for a mortgage, small-business credit line, or brokerage account,... Financial technology, or fintech, is fast changing all of that by making it easier to save, borrow, and invest without ever engaging with a traditional bank. So what exactly is FinTech? Is there a chance that FinTech will replace banks in the future? Let us show you in detail via this blog.
What is Fintech?
The term FinTech is actually a combination of two words including Financial services and Digital technology. In short, FinTech is the practice of using digital technology to create and innovate the development of new products and services including big data, online banking, alternative finance, mobile payments, and overall financial management.
In its early years, FinTech was used as a back-end technology to support banks and financial institutions. Since then, its definition has shifted significantly. It now includes a number of consumer-oriented applications. The year 2019 saw a remarkable development of FinTech in which users can use it to trade stocks, manage funds, and pay for insurance and food.
As a result, FinTech has not only impacted numerous applications but also revolutionized how consumers access their finances. To be specific, it has an impact on everything from mobile payment apps to investment and insurance firms. This profound impact makes FinTech a potential threat to traditional or brick-and-mortar banks, which means it could soon replace banks in the near future. Furthermore, customers in today's digital world are hesitant to use services provided by the traditional financial services industry. Instead, they prefer quick and secure services provided by Fintech. This is why FinTech is becoming more popular and is predicted to replace banks and other financial services.
To see how profound Fintech’s impact is, let's now examine its impact using some statistics. The vast majority of Americans (84 percent), according to a 2016 study, use fintech to manage their finances. Additionally, the majority of them manage their finances using at least one to three apps. About 69 percent and nearly one-third of users, respectively, use these apps daily or on a regular basis.
Surveys have also pointed out that roughly 1.7 billion people don’t have any bank accounts worldwide. Therefore, fintech serves as a lifesaver by offering a simple way to participate and access financial services without the need for a bank account. Due to its development to promote financial inclusion, fintech is the best option.
Read more: Marketing strategies for your fintech product launch
In what ways FinTech is changing the traditional banking industry
Integrate smart chips into ATM cards
Thanks to the help of EMV technology embedded in the chip, ATM cards with smart chips have significantly reduced the amount of money lost in the event of accidents. With this technology, each transaction requires a one-time password. This improves security because the code can only be used once per transaction; therefore, even if it is stolen, the thief will be powerless to use it.
To save time and avoid trouble, bank employees typically advise their customers to memorize their pin. By offering their clients the highest level of security, banks are constantly looking for new ways to combat thefts and frauds. The old magnetic stripe technology is more vulnerable to fraud compared to smart chip technology because it uses the same pin for all transactions.
Secure ATM cards with biometric sensors
Biometric sensors are one of the significant innovations spawned by fintech in the banking industry. Iris scanners and biometric sensors are top two outstanding examples of recent technological advancements in ATMs. Furthermore, these developments can be seen as a breakthrough because they could make carrying a credit card unnecessary. Additionally, forgetting the pin will never be a matter anymore with this new technology.
Since you'll be able to access your own account without a password, these advancements will not only increase convenience and ease but also make ATMs more secure than ever. The biometric ATMs identify the account owner using integrated mobile applications, fingerprint sensors, palm, and eye recognition. For a safer and more accurate identification, ATMs also use micro-veins to completely eliminate any mistakes the ATMs might make when identifying customers. Thanks to the usage of biometric technology, customers will never experience the panic feeling when they’re at the mere thought of losing their ATM card. Since even if they lose their card, they will still be able to access their funds.
Reduce branches of banks and increase omni-channel
FinTech financial services are shifting the entire banking system from a branch-specific process to multiple digital channels including internet, social, and mobile. It also lessens the bank's need for physical branches to function. As a result, several banks are lowering their branch count by implementing omnichannel banking. By the end of 2016, only in the European Union, over 9100 bank branches were closed thanks to this mass transformation.
Improve customer service with chatbots
FinTech companies have also developed customer care chatbots, which have gained lots of popularity recently. In short, chatbots are just pieces of software that employ machine learning and natural language processing to continuously learn from human interaction. By imitating the way humans communicate and behave, chatbots have done a great job in greeting and chatting with customers.
Chatbots are extremely efficient since they automate customer interactions such as inquiry answering and delivering customers to the appropriate departments. Chatbots can also provide additional services, such as investing advice. UBS's chatbot, on the other hand, can scan customer emails autonomously, lowering the total time required for the task from 45 minutes to only two. Similarly, a chatbot utilized by Japan's largest bank may assist consumers in finding important information on their website. Chatbots have become an essential aspect of all banks since they not only save costs and improve customer satisfaction, but also allow call center operators to focus on value addition.
Promote the development of AI (Artificial intelligence)
AI has been an essential component of FinTech banking services throughout the years. AI, in conjunction with machine learning, is critical for fraud detection. When a probable fraudulent transaction is detected, the software used by banks generates a warning. It is later supported by a human examination, which assesses if the attack was real or not.
However, as time passes, identification of attacks becomes more difficult as the attacks also evolve to be more complex. As a result, a lot of time and money is wasted. Furthermore, the potential of client data loss is always present, which encourages banks to implement AI technologies to fight this issue.
Implementing machine learning-driven statistical modeling, a data aggregation platform, and process automation can completely alter AML operations by infusing new efficiencies, according to McKinsey. For instance, data aggregation platforms can account data and mine unstructured transactions to provide a 360-degree perspective of the client, thus speeding up transaction validation. Furthermore, banks can use machine learning algorithms to forecast and determine trends of a fraud attack using past data. This will minimize manual labor by around 50%.
Increase the mass development of E-wallets
Another evidence of FinTech’s expansion is the massive increase of E-wallets. Some of the world's largest e-wallet firms include Samsung Pay, PayPal, Android Pay, and Apple Pay. These wallets are used for a variety of applications, including P2P payments, top-up & utility bills, foreign transfers, ticket booking, and many others.
Besides large e-wallet firms, there are also some remarkable standalone wallets like Starbucks and Walmart Pay, which are gaining success in the new digital era. E-wallets have an ability to attract customers due to their intriguing services, which include thrilling deals, generous cashbacks, and reward points,... Because of their enormous success, many institutions are increasingly discovering their significance and seeing e-wallets as a collaborative strategy to embrace technology changes.
Inventing mobile banking
The increased use of smartphones has compelled banks to develop mobile applications. Most banks now feature a mobile application with a user-friendly UI. Banks have also developed smartphone apps that recognize the user's fingerprints. This function is carried out by the application without the use of any biometric app or hardware. A mobile application allows you to access funds quickly. In addition, it also allows the user to execute a variety of banking operations, including quick bill pay, check deposit, account balance, statements, and many more.
Final words
FinTech is enabling people to take control of their financial lives, resulting in higher financial knowledge than ever before. By employing new technologies, it is knocking down outdated silos and advancing consumers' financial situations and outcomes.
Today, FinTech business is massive, encompassing everything covered in this blog. It is expected to grow in the coming years, with retail banking software, financial core banking software, etc,... And, if recent venture capital investments in fintech firms reach an all-time high in the near future, the industry will continue to grow for years to come. However, whether Fintech could replace traditional banks or not is still unpredictable, only time will tell how much of an impact FinTech will have on our planet.
