Financial technology is the innovative and technology-based technology that seeks to replace traditional financial instruments in the provision of financial services. It is also an emerging market that makes use of cutting edge technologies to enhance financial activities in finance. The most significant innovations are provided by financial technology. However, many institutions are yet to adopt this new paradigm. Financial institutions include banks, mortgage companies, investment companies, insurance companies, brokers, financial institutions and consumer finance. These players have been utilizing financial technologies for decades, but it is only in the past decade that they have been making use of this technology to provide financial services.
Financial technologies refers to the novel solutions provided by financial institutions that can be used to enhance financial services like the provision of loans, trading stocks, electronic funds management, electronic invoice and credit card processing, automated clearing houses, customized online banking, online invoice management, and automated real-time financial quote. Some fintechs are providing financial solutions to industries that include financial systems integration, advanced engineering solutions, supply chain optimization and software systems integration. Fintech are thus helping consumers to benefit from a variety of benefits offered by financial markets. Some of the major players in the fintech market are those providing online stock trading services, like stock brokers, banks, money managers, and stock exchange professionals. Many other financial institutions are adopting online trading technologies to provide mobile, internet-based access to their stock exchanges.
The impact of fintech on banking practices is profound and far-reaching. Fintech has changed the nature of long-term banking by introducing new financial tools and processes, such as fintech stocks, futures, options trading, and foreign exchange (forex) trading. These innovations have had a profound effect on banking practices since they reduce the overhead costs of the financial institutions and, at the same time, increase profits. Some fintech products have actually helped banks to become more profitable.
Fintech has also had an indirect but significant impact on the banking sector. Since traditional banks are adapting their business models to fit the needs of biotech companies, consumers are now shopping for banks that offer traditional banking services as well as those offering fintech stocks and options. Consumers are increasingly comfortable with online banking and are open to using online banking to shop for clothing, automobiles, electronics and other goods. This has created a positive feedback system in which customers praise traditional banks for offering superior financial products, while criticizing traditional banks for not being able to match the better products offered by financial Innovations. The most important implication of this phenomenon is that consumers no longer consider traditional banks to be outdated and are now willing to try out cutting-edge banks. This is a clear indication that the way we think about traditional banks has changed.
The impact of fintech has affected the cost structure of financial businesses. Since traditional banks acquire, manage, and pay for a large number of assets, businesses are finding it hard to absorb the high cost of employing management staff to monitor and manage their portfolio of assets. They are finding it cheaper and more economical to let a professional investment management firm to handle this issue, and even if it is expensive, would be much cheaper than hiring management staff. Also, traditional banks have been reluctant to implement technology in an effort to remain relevant and competitive, and many times have fought against innovation by fintech companies claiming that they will replace their customers’ personal financial management solutions with their own proprietary software. As a result, there is less competition for services, and more consolidation and centralization of costs.
As a result of the above mentioned effects, the number of start-up banks offering financial services related to fintech has significantly decreased. Many traditional banks have already adopted or are very soon going to adopt fintech trends, like introducing online banking, accepting online credit card payments, and allowing customers to use mobile phones and other mobile devices to make deposits. These moves are intended to attract new customers, and increase customer loyalty. However, it appears that for now, the focus for start-ups still lies in traditional banking because it seems to be easier and more profitable, as well as more secure.