It is impossible to deny the significant impact of fintech on banking products and services. Technology is transforming the market, improving operational efficiency and customer experience. Banks that ignore these changes are inferior to more innovative competitors.
Fintech market revenue is expected to hit $1.5 trillion by 2030, growing sixfold, with banking fintechs comprising a quarter of banking valuations. In 2023 - 1H 2024, the main industry focus will be on customer acquisition (mentioned by 30% of fintech CEOs surveyed by BCG in February 2023), managing costs (29%), product innovation (25%), regulatory compliance (17%), and new products (14%).
How is fintech changing the banking industry, and what benefits does it provide? Which companies are already reaping the benefits of successful digitalization? And finally, is fintech a threat or a new opportunity? As a custom software development vendor, Integrio will answer all the exciting questions in this article.
What is Fintech?
"Fintech" has become a buzzword today, meaning an innovative combination of technology and financial services. It is a comprehensive umbrella covering businesses that use advanced technology to deliver a range of financial products, from fast payments and secure money transfers to sophisticated wealth management strategies.
Fintech comes in four types, each bringing chances and challenges for banks.
Payment processing and money transfers. Fintech facilitates seamless transactions, empowering customers with quick and secure payment experiences. By integrating a fintech solution, the bank enhances convenience and speed in money transfers.
Investments and trading. The investment area sees fintech's influence in trading various financial instruments. For example, banks leverage this technology to empower clients with tools for managing diverse investment portfolios, including stocks, bonds, exchange-traded funds (ETFs), mutual funds, and hedge funds.
Loan origination. Fintech streamlines the loan origination process, transforming the conventional application and approval timeline. Banks adopting this technology enable clients to apply for loans online and receive approvals within minutes.
Wealth management. Fintech extends its reach to wealth management, providing banks with asset allocation and portfolio optimization tools. This empowers financial institutions to offer clients personalized investment advice, tailoring solutions to individual needs and preferences.
The widespread influence of fintech is changing the structure of banking operations, challenging traditional models, and opening the way for innovation. Its transformative power requires banks not only to adapt but also to actively adopt technology to stay relevant. It allows banks to create and provide new, customer-oriented products and services.
How Has Fintech Revolutionized Traditional Banking?
From payments to wealth management, the influence of fintech companies has disrupted traditional banking norms, offering solutions that are not only more convenient but also user-friendly. Let's delve into the technological trends shaping the future:
Cloud Technologies and Big Data
Cloud technologies enable banks to centralize their operations on a network, providing clients worldwide access to financial products and services.
With big data analysis, banks sift through vast amounts of customer data, providing insights into individual preferences and behavior. This, in turn, enables personalized offers and recommendations, fostering a more tailored and customer-centric banking experience.
Open APIs (Application Programming Interfaces) in banking promote collaboration between different financial institutions and third-party providers. They facilitate secure access to financial information, enabling seamless and safe data sharing between separate entities.
This collaboration fosters innovation and allows the software and web development of new and improved financial products. At the same time, it offers enhanced services by incorporating functionalities from various sources.
Omnichannel banking offers a seamless customer experience by providing multiple communication channels, including digital tools like chatbots. This enables fast and efficient problem resolution, enhancing overall client satisfaction.
At the same time, omnichannel banking delivers a personalized and flexible banking experience. Customers choose their preferred channels, be it online, mobile, or in-person, expecting consistent service across them.
Artificialе Intelligence & Machine Learning
AI and machine learning technologies help to analyze customer behavior, spending habits, and historical data. This analysis allows banks to predict future client activities, facilitating more informed decision-making.
By understanding customer preferences and behavior, AI algorithms suggest payment methods with reduced fees, optimizing the cost for clients.
E-wallets have transformed the way individuals and businesses manage their finances. They offer unparalleled convenience and accessibility, allowing users to securely store payment information and easily conduct transactions.
E-wallets have become a significant component of worldwide e-commerce transactions, constituting a substantial portion of digital payments. This trend has pushed traditional banks to integrate e-wallet services into their offerings to remain competitive.
Smart Chip Technology
Integrating smart chip technology in credit and debit cards has significantly enhanced transaction security. EMV (Europay, Mastercard, and Visa) chips have been a game-changer, reducing card fraud and instilling trust among customers.
Clients now anticipate safer and more secure payment methods, compelling banks to adopt this technology to stay competitive.
Biometric sensors represent a breakthrough in authentication methods. They recognize unique physical attributes like fingerprints, facial features, and voice patterns, improving the security of financial transactions.
The adoption of biometric sensors has shifted towards seamless and hassle-free customer authentication. This gives clients a more convenient and efficient banking experience, reducing reliance on traditional passwords and PINs.
The Impact of Fintech on Banking Sector
The dynamic integration of financial services with cutting-edge technology has given rise to a myriad of benefits, reshaping the traditional banking paradigms:
Thanks to innovative solutions, banks use technologies such as artificial intelligence and blockchain, fundamentally changing the landscape of traditional services. For example, implementing AI algorithms in mobile banking applications automates routine tasks, reducing time and minimizing the likelihood of errors.
This streamlines day-to-day operations and enables banks to provide services faster and more efficiently. As a result, it helps raise operational excellence and customer satisfaction standards.
The introduction of process automation and optimization allowed banks to reduce physical efforts and, accordingly, operational costs. A clear example is the integration of automated chatbots into the customer support service. This not only speeds up the resolution of requests but also significantly reduces the need for manual support.
Such economic efficiency not only strengthens the financial condition of banks but also allows them to redirect resources to improve other aspects of their services and technological infrastructure.
Fintech also improves security measures, providing a safer online and mobile banking environment. They may include encryption, fraud detection, and biometric authentication mechanisms. For example, implementing biometric authentication, such as fingerprint recognition, has become a strong defense against unauthorized access.
This instills client confidence in the security of financial transactions and reflects the bank's commitment to creating a trustful environment.
Improved Customer Experience
By providing banks with innovative tools for personalization, financial institutions understand and cater to individual customer needs with unprecedented precision. For example, deploying an AI-driven retail BI solution has allowed banks to analyze spending habits, delivering tailored insights and user recommendations.
This way, clients get a more profound understanding of their financial behaviors, as well as a sense of engagement and satisfaction.
A fintech solution sets a new level of transparency in the banking sector. The integration of blockchain technology, for example, provides an immutable history of transactions. As a result, customers track and verify every financial activity with unparalleled clarity.
This way, financial technology transforms the customer experience and creates transparency fundamental to building and maintaining strong relationships between banks and their clients.
Fintech breaks geographical barriers and makes banking more accessible than ever before. The advent of mobile banking applications, offering 24/7 access to account information and services, exemplifies this accessibility. Regardless of the user's location, these applications provide a seamless and convenient financial management platform.
That means banks are adapting to the client's changing expectations and expanding their reach. Today, their services are not confined by physical limitations — users can access them from virtually any corner of the globe.
The enhanced processing capabilities facilitate swift and secure payments. For example, integrating instant options within mobile wallets enables users to conduct transactions with high speed and efficiency.
This meets the growing demand for immediacy in financial interactions and positions banks at the forefront of a digital era.
Is a Fintech Solution a Threat or an Opportunity to Traditional Banks?
The relationship between fintech and traditional banks is complex and multifaceted.
From one side, fintech companies have entered the market with innovative and agile solutions, disrupting a traditional banking approach. They often operate with lower overhead costs, providing more budget-effective and customer-centric services.
Traditional banks must adapt to these changing expectations or risk losing customers to more agile fintech competitors. Also, the legacy systems of many institutions may hinder their ability to quickly adopt and implement cutting-edge technologies.
On the other side, many traditional institutions recognize the value of collaboration with fintech firms. Such partnerships allow banks to integrate innovative solutions into their existing frameworks to enhance customer experiences, streamline processes, improve security, and venture into new markets.
The solution is to invest in digital channels, upgrade technology infrastructure, and adopt an innovative approach to stay relevant. Some traditional banks establish internal teams or partner with external fintech vendors to foster innovation.
Let's get acquainted with real cases of large banks:
Royal Bank of Canada has joined forces with open banking fintech Plaid. This collaboration not only provides 17 million RBC customers with safe access to a variety of programs and services on the Plaid network but also gives them more control over the data they share.
Barclays & Flux. Barclays Bank partnered with Flux to introduce an eco-friendly alternative to paper checks – digital receipts. Customers can conveniently access and monitor their spending as receipts are securely stored alongside the corresponding transactions.
HSBC Bank invested $35 million in Tradeshift, a global supply chain management network. This aligns with HSBC's commitment to digital transformation, aiming to enhance working capital flow in supply chains.
Upgrade Your Bank with Integrio's Fintech Services
The banking sector has undergone a profound transformation with the advent of fintech solutions. They allow you to increase efficiency, reduce costs, strengthen security, and enrich the client experience. In the digital age, banks must embrace these technologies to remain competitive and meet the dynamic needs of their customers.
Integrio has extensive experience developing fintech projects from scratch and modernizing existing solutions. Our dedicated developers are ready to guide you through every stage of your project. Contact our experts to understand the possibilities.
Fintech differs from traditional banking by leveraging innovative technologies to provide services in a more agile and user-centric manner. They often operate with lower overhead costs, offering budget-effective and digitally streamlined solutions. Fintech prioritizes rapid adaptation to technological advancements, leading to quicker service delivery compared to the more bureaucratic processes in traditional banking.
Fintech companies excel in swiftly adapting to emerging technologies, allowing them to continually introduce novel solutions that resonate with evolving consumer expectations. This adaptability is completed with a focus on user experience and cost-effectiveness.
Such a transition requires a comprehensive digital transformation strategy encompassing technology infrastructure upgrades, process automation, and cultural shifts. This involves investing in modern technologies such as cloud computing, data analytics, and artificial intelligence to enhance operational efficiency and customer experiences. Additionally, you should foster a digital mindset among employees and embrace Agile methodologies.
The development of financial technologies in the banking sector is driven by the need for increased efficiency, improved client experiences, and enhanced competitiveness. A fintech solution streamlines traditional banking processes, reducing costs and boosting operational efficiency. Additionally, the demand for innovative, user-friendly services is crucial to meet evolving customer expectations and stay ahead in a dynamic financial market.