Is Fintech really the best option for banking in the future?

Ever since the emergence of a structured financial and banking industry, there have been consistent efforts to make things better, secure and more convenient to customers across the world. At the moment, 89% of the people in the west use banks while a measly 41% of those in developing countries do so.

We have technologies in place to protect shareholder investments and ensure the safety of money and items of value. Of all the emerging concepts in the financial industry, one of the standout ones is Fintech, a global idea that started at the beginning of the 21st century and has been gaining traction over the years.


What is Fintech?
Fintech simply means financial technology. At its birth, the concept covered the assortment of activities carried out in standard consumer trade applications as well as some specific aspects of financial markets. Today, we understand it as a combination of diverse technologies applied in a range of financial activities such as banking, projections, literacy and other technical areas in the niche.

Fintech has also grown to embrace technologies involving the use of crypto currencies such as bitcoins and a host of others that have cracked myths that computer mining would never gain a believable, acceptable currency or find mainstream acceptance. In a nutshell, Fintech is a solid base upon which personal and commercial finances are known to thrive.

Is Fintech the banking of the future?
By 2014, the total global investment in Fintech tripled, with $12 billion invested at the end of that year alone. Over the last two decades, both banks and non-bank financial institutions have realized that the wind of change is upon us and have put in place mechanisms to adopt these new ways of doing things. That in itself is saying a lot since we know that for a long time, banks have been very reluctant when it comes to accepting and working with change.

We now have around 12000 start-ups (around half of which are very active in the market today) crediting their surge into popularity to Fintech, and we know that at least a dozen of these ventures come at a valuation of over $1 billion.

At the core of all these efforts is a need to take advantage of existing technology while offering a great experience to an ever-demanding pool of modern clientele. Institutions are now restructuring their budgets in order to mount a charge for a stake in Fintech. There are new approaches in formerly conservative areas such as foreign trading and banks now have digital goals in place. The wind of change charging through the industry is a clear indication that Fintech is the way to go.

Are Fintech startups more effective than big banks?
From the onset, it is important to understand that these comparisons are highly complex because of the relationship between Fintech and the regular banking industry. See, this new approach to doing things relies heavily on the availability of established infrastructure, which essentially means that said start-ups have to use existing framework as a springboard to the next level.

However, Fintech has managed to take traditional models, improving upon them and running away with the prize at the end. They understand the modern customer far better than conventional institutions do and have the gadgets and the technology to sway the decisions of prospective or existing pools of clients. Banks may have deeper pockets and big data on their side, but Fintech is experiencing a real surge.


Do big banks see Fintech start-ups as a threat to regular banking?
Fintech start-ups are known for their tendency to make use of sophisticated and highly disruptive technologies to serve their increasing pool of clients. For a long time, banks have feared that a surge would deprive them of incomes, and this bubble is now becoming real trouble for the executives at the helm.

Today, Fintech boasts access to data that is highly refined and targeted. Through their methods, they can access almost anything they need from customers and keep it for use in the future. In addition to that, they offer free services or reduced rates. Conventional banking on the other hand hates offering freebies and thrives on incredibly high margins.

The real scare is that banks could actually lose 60% of their profits to Fintech over the next decade. So much is the fear that these institutions are actually adopting some elements of Fintech in their standard operations. Fintech does have its challenges (such as lesser volumes of data owing to their comparatively recent emergence onto the scene and the resistance to change by conservative clients), but the current showing is pretty strong.

Are Fintech company service fees cheaper than banks?
Fintech companies operate on simple principles - an avid understanding of the needs of clients combined by a seemingly bottomless supply of technological applications.

While banks are interested in the big money, Fintech start-ups are not afraid of doing the grunt work. This essentially means that they are willing to invest heavily and make a small return that increases over the years as their objectives take shape. The start-ups are ready to take hit, after hit until they learn what the client pool wants, something big banks see as a huge risk they would rather stay away from.

Rates offered are much cheaper than what the banks are willing or capable of offering, which is largely due to the structure of that market. Fintechs think in terms of data, analytics and a thorough understanding what the client is after. Afterwards, they set about unleashing their technology into the market, and at this point, the appeal to customers is simply irresistible. They are not afraid to chance it all and never walk away from potential profits as long as the margins are acceptable.



What is the role of Fintech in international and cross border banking?
We live in a world where cross-border payments are more than just a requirement - they are an absolute necessity. Our banking system is horribly complex and interconnected, which raises the need for a structured way of accessing and making payments.

Banks have a processes in place for this sort of thing, but do not have close to the technological muscle required in a market where clients need things done instantly. Forex, for example, is a mind-blowing niche that operates for 24 hours across different time zones. It encompasses an array of currencies, an assortment of global entities and the arduous task of navigating different political and economic environments. Fintech provides a method upon which such complexity can be broken down in order for trade and banking activities to thrive.

From a general perspective, Fintech offers the infrastructure that payment players require to move things along. It connects those who want to make payments to those that need said payments and does so using the most sophisticated technology available today. Where banks are reluctant to go, Fintech goes and navigates the complex world of connected systems and a whole lot of demanding customers.

What are some of the top Fintech companies offering banking/financial services?
There are many Fintach companies around the world, and while a sizable number is dormant or experiencing teething problems, there are some serious established entities:

Tata Consultancy Services (TCS)
Based in Mumbai, the company enjoys over $12 billion in revenues every year. It has a presence in 44 countries.

Jack Henry and Associates
Operating out of Monett, Missouri, the company focuses on core banking, payment processing as well as branch banking. Jack Henry serves tens of thousands of customers.

Equifax
Equifax is based in Atlanta, GA and offers niche services such as financial data provision, regulatory compliance solutions and risk management strategy.

FIS
The company works from Jacksonville, FL and provides banking solutions by means of software. It also outsources technology that is key for major financial services.

Infosys
The Bangalore startup offers technologically driven business finance solutions in order to help enterprises build a sound financial and client relationship base.


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