The banking industry has sailed through numerous challenges since the 2007-2009 financial crisis. Similarly, the banking industry constantly faces drawbacks, including damaged reputation, high compliance requirements, regulations, and diminished interest rates and credit growth. Banks currently face increased competition and threats due to digital disruption. On the other hand, banks can smoothly sail through digital disruption by investing in FinTech and offering digital financial services.

About a decade ago, the ten greatest banks by assets belonged to the  United States or Europe. In the present world, Asian banks predominantly fill the top 10 banks of the world. The technological advancements and digitalization, directly and indirectly, influenced this shift in the banking structure. Considering the already prevailing advances, how will banking and financial services look in the next decade?

Read this article to understand the inception of FinTech and digital-financial platforms and their advantages, creating digital disruption and transformation in the banking industry.

Digital Disruption & FinTech Innovation in Banking Enhancement

The contribution of modern technology offers meaningful inferences for the growth and development of the participants of the market in concern. Furthermore, technology innovation in the banking industry provides numerous alleviations, including financial counseling, minimum monetary intermediation costs in payment systems, lending, and insurance. The interception of FinTech also allows the financial market to offer better products and services to consumers.

FinTech platforms offer unparalleled convenience and service to their consumers by utilizing online origination technology. Fintech firms maneuver efficiency in the following ways:

• FinTech reduced the need for intermediary personnel, including tellers and loan officers, and a distributed branch network. This capability gives consumers an advantage as they use their smartphones for banking and other financial activities.

• FinTech utilizes statistical models based on big data and screens awaiting borrowers to detect liabilities and filter out the safest candidates. Unlike traditional banks, this screening system prevents information irregularities and makes the transaction safe for both the lender and the borrower. Fintech-based organizations and platforms may also approve loans faster. Faster transactions occur due to FinTech lenders processing mortgage applications with 20% more speed than other lenders.

• FinTech asserts dominance in boosting financial inclusion. Moreover, FinTech firms make financial services available for unbanked populations of rural regions across the globe. The financial inclusion offered by FinTech further extends financial assistance to Small and Medium-sized Enterprises (SMEs). Hence, digital innovation caused by FinTech boosts the financial aid provided to SMEs and startups underserved by traditional banks.

• FinTech firms hold higher innovating potential than traditional banks. They do not have to deal with any legacy technologies. Therefore, FinTech firms run on practical operational designs.

• Investing in FinTech allows for more accurately targeted price differentiation. Rate-setting models used by FinTech lenders set them apart from non-FinTech firms. Furthermore, through online origination, FinTech firms get to charge higher rates from considerably low-risk borrowers. This capability stems from low-risk borrowers being more sensitive to time than price.

Read part 2 of ‘Banks & Digital Innovation; Sailing Through Digital Disruption’ to know more about FinTech innovation in banking efficiency.