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The term ‘fintech’ happens to be a merge of the two words ‘financial’ and ‘technology’ which is used to describe any and every technology used to any provide financial service to end-consumers and business. So, the application of fintech ranges from mobile banking and insurance to cryptocurrency and investment apps. Broadly, fintech entails the usage of any entity to perform or connect to their desired financial services via the internet thus allowing the user to partake in transactions such as money transferring, lending, loan managing and investing. A real-life example of fintech would be apps like PayPal or Venmo through which many of our day-to-day transactions take place, from the payment of salaries to just a casual purchase in a grocery store. Fintech has integrated into our lives without us even realizing the intensity of how much we have grown to depend on it. It’s quite difficult to fathom that fintech allows a user to be able to open up a bank account over the internet, without having to be physically present at a bank and even allows users to use their phone as a ‘digital wallet’ to carry out our monetary transactions.
Right now, that is globally, the emerging fintech technologies would be include Artificial Intelligence (AI) and Big Data. AI for fintech industry would be used to predict changes in the stock market and give insight into the economy, thus allowing firms to better understand and serve its clients. Then Big Data, for the financial sector, is also used to predict client investments and market changes and create new strategies and portfolios. It also allows firms to analyze and mitigate risks on their future investments through its big data analysis.
Like all technology, there are certain drawbacks to fintech like the way it possesses potential threats to the traditional methods of financial marketing. There is a concern on how it might replace the old ways, but we simply cannot ignore the possibilities of what the integration of fintech would unveil for its users.
To grasp a better knowledge of fintech is it vital to know the history of it. According to a paper by Arneris, Barberis & Ross the key periods in the timeline of fintech are broken down into three major timelines. The first era is between 1886-1967, as this is the time around where rapid transmission of financial information started taking place. It is also when we had first received the transatlantic cable and Fedwire in the USA along with the technology of credit cards. The second era is from 1967 to 2008 where we were introduced to ATMs, digital stock exchange, online banking and the initial paving of e-commerce business models. The third era encompasses our current time from the year 2008 to the present, where the public mindset shifted from the traditional methods of financing to a more digital one. We have had the launch of Bitcoin, which happens to be a cryptocurrency, and had a major impact in the financial markets globally. We have also witnessed a rise in the dependency of digital payments through apps like Google Wallet and Apple pay whose growth was enabled by the massive influx in the usage of smartphones.
Today, according to the fintech adaptation index 2017, the countries with the highest Fintech usage are China (69%) and India (52%). China, India and other emerging markets never had time to develop Western levels of physical banking infrastructure, which has left them more open to new solutions. In the case of China, the fintech penetration is well above the average global adoption (33%) as well as that of the average adoption across emerging markets (46%).
In the context of Bangladesh, services in banking sector that incorporates heavy uses of fintech is yet to begin but there are other forms of it being implemented. Mobile phone apps such as Bkash, Rocket and Upay are allowing users to have more fluid exchange of currency without the physical need of cash. The apps are allowing users to be more efficient and also providing them with security as they don’t have to carry cash around. Overall, fintech uses in Bangladesh are still at their relatively early stages but we can quite vividly envision that it would grow to a much more widely used platform.
Fintech has enabled companies with low-cost way of coming up with convenient, personalized and data-intuitive products and services. Fintech has also lowered barriers to entry for new companies, along with the established financial institutions, to join the evolving industry and has thus resulted in a complex web of cooperative competition.
There are four categories of Fintech users: 1) B2B for banks and 2) their business clients, 3) B2C for small business and 4) consumers. Mobile banking trends, increased knowledge, data, and more reliable access analytics and decentralization will create opportunities for all four groups to engage in previously unimaginable ways.
The younger consumers are more aware of fintech and tend to be the most active users of fintech. The fact is that customer-oriented fintech is mostly targeted at the millennial since this segment has a massive size and rapidly increasing earning potential. It is believed by many fintech watchers that the millennial are the main focus of fintech because of the market size rather than their interests and ability. Hence fintech can cater to the older generation very little since their problems are not addressed properly.
Before the advent and adoption of fintech a start-up or business owners would have to visit banks physically to seek funds and establish infrastructure, such as a landline-connected card reader, and relationship with the credit card provider if they intended to accept credit card payments. Now fintech has made these processes easier and hassle-free for them.
Fintech is gradually changing the shape of the global financial system. With the collaboration of fintech startups and traditional institutions things like P2P loans at a fingertip, crowdfunding, cryptocurrency payments and automated financial advisors have evolved over time.
In the beginning, fintech startups and traditional financial banks were rivals and were competing against each other for attracting customers. But things have changed now. They both are now working hand in hand because of the disruption in the financial services caused by fintech. Combinedly, they are now able to provide their clients and businesses better client service, enhanced financial security, more opportunities and so on.
Big Data is the massive volumes of structured and unstructured data sets stored electronically which can be analysed and used to reveal trends and patterns related to human behaviour. Big Data is used in fintech to come up with better personalised financial services and products for both existing and potential new customers. Advanced technologies like Artificial Intelligence and Machine Learning algorithms deployments can detect fraudulent transactions by identifying unusual user activities based on their behavioural patterns.
Another impact of fintech on banks is the changes in the clients’ personal data protection and customer experience. Since fintech rely mostly on digital and mobile applications data infringement risks have increased in the past few years. Hence fintech firms are investing more on their cybersecurity infrastructures and cloud services to ensure better customer experience by advanced techniques to detect automated attacks on the personal data and digital wallets.
Mobile payment volume has increased dramatically in the past few years; thanks to fintech. Despite the easy access to transactions 24/7, there are still customers who prefer traditional banking services. These digital transactions are now more innovating and are also going to attract these conservative customers as well.
Fintech has enabled an omnichannel banking making it possible for users to make transactions in web platforms, applications and social networks. Fintech has also reduced transaction fees, improved transparency and lowered error risk.
Banks are adopting innovative technologies to come up with more trailblazing products and services for their clients such as the following:
Fintech has not only impacted evolution in the business models and infrastructure of banks but also has caused significant changes in their human resources. Now banks and other financial institutions are hiring employees with skills and expertise in both finance and technology. This has opened new doors for young people to choose the best suitable career path that feeds their interest and skills. Positions like cyber security analysts, data specialists, product managers, compliance experts etc. are gaining popularity as career choices for young people. Fintech has also made it easier for the young generation to pick career paths that will be relevant for them in the coming years. This has also created a driving force for the companies to invest more in their human resources to develop technical expertise by providing training for the existing staff, arranging educational events etc.
Fintech is refurbishing financial services for both businesses and consumers not only across the globe but also in Bangladesh. Bangladesh has adopted fintech and has moved into the emergent markets. There has been a large unbanked population in Bangladesh which was not a part of the modern financial industry. Fintech has been able to change this scenario.
Bangladesh Government has been working relentlessly on the “Digital Bangladesh Vision” which has four key elements-human resource development, people involvement, civil services and use of technology in businesses. Since the use of technology in businesses is a crucial element of the vision fintech has played a significant role to accomplish that. One of the platforms of fintech is mobile financial services (MFS) which has made the most remarkable improvement over the years by including 47% of the population financially. Now these people have cheap and convenient access to financial products and services like transactions, payments, savings, credit and insurance.
Financial services like Micro-Finance Institutions (MFI) are creating new scope to bring the rest of the population under the umbrella of financial services. MFIs is the main way through which 90% of the 180 million poor Asian households can be financially included. Since these people cannot afford high transaction costs and loan repayment MFIs can be a cheaper route for financial inclusion for them. In Bangladesh MFIs have been influential in making greater financial inclusion but its growth has become stagnant over the past couple of years after the advent of agent banking. Though social inclusion is not the main of the MFIs they are still serving the customers with savings offers as well as technological support.
MFIs in Bangladesh have a huge customer database with they can use to leverage the potentiality of fintech. MFS industry has not been able to unleash its true growth capacity due to its limitations of providing loans. This indicates a growth opportunity for MFIs to merge with the MFS to break into the untapped market.
Fintech is often portrayed as a negative force that threatens the traditional banking system. It is still a very popular thought that fintech is transforming the way people and companies connect with their banks, and the way the banks manage teir back office operations. However, as stated by Francois de Maricourt, Chief Executive Officer, HSBC Bangladesh, fintech rather than threatening, actually compliments the banking institutions. The innovation of financial technology represents evolution rather than revolution of the traditional banking. It is understable that ever since the global financial crisis of 2007-2008, regulation have been constantly evolving and becoming more complex. But the goal of financial technology is only to make financial services more efficient, so that customers can get improved services from their banks. Figures from various researches itself shows how the use of technology can enhance the diversity of financial services. According to the data of the Bangladesh Telecommunication Regulatory Commission (BTRC), at the end of February 2017, Bangladesh had 67.25 million Internet users and 129.58 million mobile subscribers, making the cell phone a strong medium to perform many other business activities besides communication. Bank-led Mobile finance services have seen a rapid growth and have become an important tool-of-the-trade for extending banking services to the unbanked/banked population. There are 52.68 million registered mobile banking accounts as of May 2017, as stated in the Bangladesh Bank website. However, despite this rapidly growing number, cash is still the most prevalent form of financial transaction. It is expected cash transaction will reduce in the next few years and mobile money will grow as more and more people will start paying money for private and government services through mobile wallet. In the past, a large number of technological changes have been seen such as credit cards and ATM machines. Those changes provided huge advances in convenience for consumers, but they did not either threatened the financial landscape. Rather, the financial institutions remained the dominant players and adapted to these changes. Which shows that banks and fintech start-ups have a great deal to offer each other.
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