Fintech is a ‘portmanteau’ of two words namely “Finance” and “Technology”. Put differently; it describes the convergence of finance and technology – or ways in which technology is improving access to finance, from making payments, currency, peer to peer lending and even wealth management.
Technology and the internet are undoubtedly taking over all spheres of our lives. It began with the connectivity of computers via the web, then the connectivity of people via the internet and finally connectivity of each and every other aspect of our lives via the internet. Finance is one of those areas where tech and the internet have spread to and the effects on day to day life is phenomenal through fintech.
Financial institutions (banks and insurance companies) have for years neglected their consumers. What fintech seeks to do is to tap into those gaps where brick and mortar finance have failed to provide adequate solutions. This has brought what has been described by many as a ‘disruption’ of the financial sector.
A while back, Banks and other financial institutions could have been less concerned by fintech firms. Nowadays, venture capitalists and even Banks themselves are throwing money at fintech enterprises and start-ups all over the world. In addition to that, multinational tech companies are quickly joining the fintech bandwagon. For example, Apple has developed Apple Pay; Samsung has Samsung pay, and Google has Android Pay. These are solutions which simplify payments of bills, and other day to day payments, providing what is known as digital wallet. The aim is to replace credit cards which are prone to security breaches and to create quicker and easy payment gateways.
Banks and other financial institutions find themselves in an ‘awkward’ scenario with fintech. The existing industry is unsure whether fintech presents a challenge or opportunity to their existence. The digital revolution in finance could reduce the role played by financial institutions as we know them, or it could increase efficiency and effectiveness on their part.
For the longest time, the banks biggest challenge has been navigating regulation and interest changes, but for them to survive they carefully need to assess themselves vis-vis fintech. Banks have largely been innovation averse, and most customers have complained that they (banks) take inordinately long to adapt to new changes – a situation that quickly needs to change. Another complaint against banks is that they are more focused on rolling out new products rather than improving customer experience. This is where most fintech firms have placed a huge emphasis on.
However, most banks have rubbished the claim that they might be pushed to the brink of extinction. This is because they believe that fintech firms and start-ups might not have the ability to absorb the risk and regulations that come with financial services. Hence, Banks are collaborating with fintech companies. A common form of collaboration is by allowing fintech firms to access the bank’s core infrastructure and build solutions from within. This is commonly referred to as opening up the APIs (Application program interface).
Fintech is bound to change how people access finance and financial solutions. The digital disruption is real, and at least everyone nowadays can attest to having interacted with one form of fintech. However, It remains to be seen where banks will adapt to the revolution or be sucked right into it.