Fintech Disruption in Banking: Evolution and Challenges

In recent years, the financial industry has undergone a significant transformation as new fintech companies have developed, bringing innovative technologies and services that are transformative. Fintech is not just changing the financial landscape and fintech investment banking; it is also posing a threat to traditional banks, which must adapt or risk falling behind. Fintech companies offer a diverse array of services that span various areas, including payments, wealth management, data analytics, and investment banking. To stay competitive in the market today, banks must embrace the fintech revolution or risk falling behind. Banks may create new opportunities for growth and stay ahead of the curve by utilizing the benefits of fintech.

You should be familiar with the technology utilized in day-to-day operations if you intend to work in the investment banking sector. Read further to learn how fintech technology changes investment banking operations.

What is Fintech?

The combination of financial services and technology is referred to as fintech. Fintech companies are those that use technology to deliver financial services and operate in the fintech area. Online banking, mobile payments, and investment advice are examples of such services.

Growth in Fintech

As previously said, Fintech is a rapidly expanding business. Indeed, the overall value of global investments in fintech startups surged considerably between 2010 and 2023, reaching 215.4 billion US dollars. According to KPMG, global fintech investment hit a new high of $98 billion in the first half of 2022.

The increased usage of mobile devices and the internet has contributed to the rise of fintech business. Furthermore, there has been an increase in interest in the fintech business as a result of the growing demand for simple and easy-to-use financial goods and services.

Technological advantage

Fintech companies often excel at providing these services with greater speed and cost-effectiveness compared to conventional financial institutions. This is due to the fact that fintech companies frequently use technology to automate operations.

In the realm of Fintech, a mobile app can be leveraged by companies to enable individuals to deposit checks and execute money transfers seamlessly. Fintech firms often cater to people who are underserved by conventional financial institutions, including those residing in developing countries without access to traditional banking services. By extending their offerings, fintech companies have the capacity to provide vital financial services to these populations, facilitating greater financial inclusion and empowerment.

M-Kopa is one example of a fintech company that serves people in developing countries who have no access to regular banking systems. This company provides a low-cost way for customers to buy electricity, pay bills, and make mobile payments with their cell phones.

How is Fintech shaping banking, then?

It would be incorrect to say that fintech is rapidly replacing traditional banks in the market. Fintech investment banking brings value to banks in the global financial market, changing the whole banking sector and boosting its competitiveness and innovation. The following are a few ways that fintech changing investment banking as we know it:

Digitalization

One significant way the financial technology sector is altering the banking system is by ditching the brick-and-mortar model and becoming entirely digital. Modern banking fintech solutions can offer a range of services in a single app, including money transfers between accounts, chatbots that offer financial advice, and loan calculators. Even without going to a bank branch, users can apply for a loan or credit card.

Smaller fee policies

Another way that fintech is changing investment banking is through transaction fees. Banks had to reconsider their business strategy, which is mainly based on charging clients high fees for domestic and international transfers. With the rise of fintech, customers now have the opportunity to make it cheaper, and they are already taking advantage of it.

Convenience and Better user experience

Due to the widespread use of artificial intelligence and machine learning, fintech solutions provide users with increased diversity and the opportunity to select the most appropriate product. Customers no longer require face-to-face counsel from a bank when selecting the type of mortgage, for example; all they need to do is go through a quick test in the app, which takes approximately 1 or 2 minutes.

For purposes of identification and verification, many banks still require customers to visit a branch. With fintech, face recognition software on a smartphone might be used to handle banking.

Blockchain technology

Blockchain technology is the most popular financial technology tool right now. Blockchain allows for the fast transfer of money and other financial assets. There are no fees, no third parties, and no minimum transaction value—only a quick funds transfer. Bitcoin can perform the same transfer in minutes, while other blockchain systems may perform similar transfers in seconds. Banks have begun to include this technology in their mobile banking apps in order to provide customers with the option to instantly transfer financial value at any time

Open banking

Open banking revolutionizes the financial services landscape by reducing barriers for providers and fostering innovation. Banks invest in fintech because this concept compels traditional financial institutions to share their financial data through APIs (Application Programming Interfaces), unlocking the immense potential for collaboration and the development of advanced financial technology products. While the extent of data sharing may vary by country, the proliferation of open APIs creates opportunities for personalized and contextually relevant financial products.

Why Fintech and Banks should work collaboratively

• Increase in the use of smartphones
• Almost every service is available online
• Security is the priority
• Better Branding
• Enhanced Customer Satisfaction

What impact does Fintech have on the banking industry?

Discovering the six game-changing fintech forces that are revolutionizing banking

Increased Efficiency: Fintech technologies have allowed banks to cut costs, improve operational efficiency, and provide better client experiences. Fintech investment banking companies can provide more efficient banking services than ever before by employing cutting-edge technologies such as artificial intelligence and blockchain.

Access to New Technologies: Fintech companies give banks access to new technologies like data analytics, which allows them to obtain important insights about customers and build better goods and services to fulfill their demands.

Better Security: Fintech solutions give banks more advanced security tools like encryption and biometric verification, making it safer for customers to make purchases online or through mobile banking apps.

Transparency: Fintech technologies are making the banking sector more transparent by allowing clients to monitor their accounts, trace transactions, and have more control over their financial data.

Faster Payments: Fintech technologies enable banks to process payments more rapidly and securely, allowing customers to make payments swiftly and securely.

Improved Accessibility: Fintech solutions can be used by banks to improve accessibility, enabling users to access online and mobile banking services from any location in the world.

Factors and Preconditions for the Development of Fintech in the Banking Industry

The following factors have contributed to the rapid growth of financial technologies in the past five years:

1. Customer dissatisfaction with banking during the global financial crisis as well as harsher regulation. Trust is an essential component for the smooth functioning of the financial system, and its erosion has accelerated the inevitable progression of financial technology advancements. In light of this situation, there is a demand for the services offered by fintech startups, along with a necessity to enhance existing services due to reduced profitability resulting from increased regulations.

2. The increase in mobile Internet has shifted the focus of the bank's customer acquisition strategy from adding another branch to developing online services, and banks investing in fintech are maintaining the mobile version of the site.

3. The largest generation of millennials in world history is a powerful force behind change in the financial sector due to their desire for innovation and increased demands for service ease, quality, and speed.

4. Consumer rights are usually prioritized in banking regulation, but their protection does not obstruct the adoption of innovations and flexibly adapts the rules to the needs of the financial sector. Contrarily, the financial industry is heavily controlled in other nations, which impedes the growth of the financial services sector.

5. The tech company's success in other economic areas such as retail, entertainment, etc. Entrepreneurs, including those in the financial industry, have become interested in new business opportunities due to the rise of profitable organizations that have dramatically altered their markets and provided more competitive goods and services.

What does this imply for the future of banking?

The rise of fintech or financial technology, or, is simultaneously contributing to a skill gap within the industry. Autonomous Research reveals that machine learning and AI have the potential to replace over $1 trillion of the existing cost structure in financial services by 2030.

Despite the considerable opportunities for rewarding careers in banking and finance, with 75% of financial services organizations generating job opportunities related to new technologies, a significant challenge arises in filling these positions. Approximately 42% of these organizations are encountering difficulties finding suitable candidates to meet the demand for these roles.

Final Thoughts

The investment banking industry is undergoing massive upheaval as a result of fintech, with new competitors entering the market and older organizations being compelled to adapt to new technology and business models. As fintech evolves and new technologies emerge, the industry is expected to face even more disruption in the coming years.

If you are intending to launch a financial product and need a dependable partner to create a user-friendly and secure app, the Sparkout team is ready to do its best to create an efficient, ready-to-go solution from scratch.