Fintech in Banking Sector

Mrs.Rohini N.Misal (M-954555300), Assistant Professor, MBA Department, SVERI’s College of Engineering, Pandharpur

What is Fintech? An Overview

Fintech is the term of addition of the two words i.e. “finance” and “technology” and which refers to any of the business that adopts technology to reinforce or automate financial services and processes. The term may be a broad and rapidly growing industry serving both consumers and businesses. From mobile banking and insurance to cryptocurrency and investment apps, fintech has used in most of the applications.

One driving factor is that many traditional banks are supporters and adopters of the technology, actively investing in, acquiring or partnering with fintech startups because it is easier to give digitally-minded customers what they want, while also moving the industry forward and staying relevant.

Figure 1. Fintech

How does Fintech work?

Fintech is not a new industry, it’s just one that has evolved very quickly. Technology has, to some degree, always been part of the financial world, whether it’s the introduction of credit cards in the 1950s or ATMs, electronic trading floors, personal finance apps and high-frequency trading in the decades that followed.

Financial technology varies from industry to industry, project to project, application to application. Some of the newest advances, however, are utilizing machine learning algorithms, blockchain and data science to do everything from process credit risks to run hedge funds. In fact, there’s now an entire subset of regulatory technology dubbed “regtech” designed to navigate the complex world of compliance and regulatory issues of industries like, you guessed it, fintech. 

Though the industry conjures up images of startups and industry-changing technology, traditional companies and banks are also constantly adopting fintech services for their own purposes. Here’s a quick look at how the industry is both disrupting and enhancing some areas of finance. 

Figure 2. Fintech Scope

Crypto currency & Block chain

Running parallel to fintech is that the birth of crypto currency and block chain. Though these both are considered very different technologies outside the realm of fintech, there are complimentary applications during which all three can work together to deliver new sorts of financial services to customers. 

 Investment & Savings

Fintech has caused an explosion within the number of investing and savings apps in recent years. Quite ever, the barriers to investing are being weakened by companies like Robinhood, Stash and Acorns. While these apps differ in approach, each uses a mixture of savings and straightforward, small dollar investing to introduce consumers to the markets.

Machine Learning & Trading

Being able to predict where markets are headed is that the grail of finance. With billions of dollars to be made, it’s no surprise machine learning has played an increasingly important role in fintech. The facility of this AI-subset lies in its ability to run massive amounts of knowledge through algorithms designed to identify trends and risks.

Payments
Moving money around are some things fintech is extremely good at. The phrase “I’ll Venmo you” is now a replacement for “I’ll pay you later.” Venmo, of course, may be a go-to mobile payment platform. Companies of payment have changed the way we all do business. It’s easier than ever to send money digitally anywhere within the world. Additionally to Venmo, popular payment companies include Zelle, Paypal, Stripe and Square. 

Lending
Fintech is additionally overhauling credit by streamlining risk assessment, speeding up approval processes and making access easier. Billions of individuals round the world can now apply for a loan on their mobile devices, and new data points and better risk modeling is expanding credit to underserved populations. Additionally, consumers can request credit reports multiple times a year without dinging their score, making the whole backend of the lending world more transparent for everybody . Credit companies worth noting include Tala, Petal and Credit Karma.

Insurance
Whileinsurtech is quickly becoming its own industry; it still falls under the umbrella of fintech. Insurance may be a somewhat slow adopter of technology, and lots of fintech startups are partnering with traditional insurance companies to assist automate processes and expand coverage. From mobile automobile insurance to wearables for insurance, the industry is staring down plenty of innovation. Some insurtech companies to stay an eye fixed on include Oscar Health, Root Insurance and Policy Genius.

 Banking

Technology within the banking sector has always existed and this is often because banks have enormously relied on computers to record transactions. It’s also helped in gaining quick and straightforward access to tip. The Importance of technology in banking sector are often seen with the launch of internet banking, ATM’s, mobile banking, debit and credit cards. However, within the previous couple of years there has been tremendous transformation in financial services; technology has revolutionized within the way we maintain our finances. The many use of online and mobile banking has created an entire new world of experience. Having said that, we’ll now check out some areas on how technology in banking system has had a wonderful impact.

Mobile banking in banking sector may be a large a part of the fintech industry within the world of private finance, consumers have increasingly demanded easy digital access to their bank accounts, especially on a mobile device. Most of the main banks now began to offer some quite mobile banking feature, especially with the increase of neobanks.
Neobanks are essentially banks with none physical branch locations, serving customers with checking, savings, payment services and loans on a totally mobile and digital infrastructure. Some samples of neobanks are Chime, Simple and Varo.

Table No.1 Fintech development in Indian Banking Industry

Year	Major Innovations
1980	Arrival of Debit card based payments
1983	Study the scope and feasibility of the computerization and mechanization
1984	Branch automation
1986	Operationalisation of MICR technology, setting upnetwork of ATMs
1990	Introduction of Electronic Clearing Services (ECS)& Credit Cards
1994	Establishment of an EFT system, optimal usage ofSWIFT
1998	Strengthening of banking system, upgrading of Technology
1991	Transfer of messages by BANKNET
1999	Inauguration of INFINET (The Indian FinancialNetwork)
2000	Introduction of Information Technology (IT) Act2000 & Electronic Fund Transfer ( EFT)
2004	Introduction of Real Time Gross Settlement (RTGS)
2005	Introduction of National electronic Fund Transfer(NEFT) as a replacement of EFT.
2006	Cheque Truncation System (CTS)
2009	Recommendation on Nationwide Electronic Financial Electronic Financial Inclusion System bylinking no-frills account (NEFIS)

Conclusion:

Competition and Profitability became key words for banks in India. Though these are mutually contradictory, banks need to balance the severity of the competition and still be within the reckoning by improving their profits. Technology has become vital for banks to carve a plane for themselves and become leaders in their respective fields; to realize this; banks need to improve their margins and profits by conducting transactions at low costs besides being lean in size. within the face of growing competition, the policy changes and therefore the operational environment in respect of the Indian banking industry , there has been an increased specialise in Technology is to be important on banking operations.

References:

• BCBS, B. C. o. B. S. (2017). Sound Practices: Implications of fintech developments for banks and bank supervisors. Retrieved from Basel-Switzerland: https://www.bis.org/bcbs/publ/d415.htm

• Dorfleitner, G., Hornuf, L., Schmitt, M., & Weber, M. (2017). Definition of FinTech and Description of the FinTech Industry FinTech in Germany (pp. 5-10): Springer.

• Ahmed T.AlAjlouni,Monir Al-hakim (2018). Financial Technology in Banking Industry: Challenges and Opportunities, ICEAS2018.

• SiddhantGurung (2018), Fintech: A messiah for the ailing Banking Industry in India, JETIR October 2018, 5(10)

• KPMG.(2017). FinTech in India- a global growth story.KPMG& NASSCOM 10,000 Startups

• Deloitte.(2017). FinTech in India- Ready for Breakout.Deloitte