Fintech Is No More a Choice; It Is a Necessity for Banks
Digital transformation has reshaped every industry, including banking. With increasing customers and volumes of data, it becomes essential for banks to innovate and improve the processes and add convenience to their customers and employees to stay ahead in the competition. Banks are thus adopting various tools and technologies, including banking software and fintech, for complete digital transformation. This News Story will highlight the importance of fintech in banking and explain why banks must not ignore fintech anymore.
- Digital payments constitute the largest segment in the fintech sector. This segment is forecasted to have a global transaction value of US$11.29 trillion by 2026.
- According to Statista, by 2024, the number of worldwide online banking users is expected to reach 2.5 billion.
- Artificial intelligence (AI) in fintech, with a market value of $7.91 billion in 2020, is expected to reach $26.67 billion by 2026, rising at a compound annual growth rate (CAGR) of 23.17%.
- According to Allied Market Research, the global fintech technologies market size will reach $698.48 billion by 2030, growing at a CAGR of 20.3% from 2021 to 2030.
- 37% of consumers name a fintech firm as their most-trusted financial brand, while in contrast, just 33% of consumers say that bank is the most-trusted brand.
- Almost 4.2 billion people worldwide will use digital banking and access their banking services through their computers, smartwatches, tablets, and smartphones by 2026.
- The global regulatory technology (regtech) market will reach $22.2 billion by 2027.
- The global blockchain technology revenues will cross 39 billion USD by 2025 with around 30 percent of the technology’s market value concentrated in the banking sector.
How did we get here?
#1. Critical Challenges That Banks Face
With increasing customer expectations and ever-rising volumes of data, banks need to deal with numerous issues. Here are the top challenges that banks routinely face.
People entrust a significant part of their savings to banks; thus, the foremost concern for every bank and its customers is data security and confidentiality.
Customers no longer have hours to spend in traditional banking processes. They need everything at their fingertips and quicker yet simple processes.
Accuracy and Operational Efficiency
Manual processes/operations consume enormous time and are prone to errors. With voluminous amounts of data and numerous complex processes, banks need to ensure accuracy and enhance operational efficiency to satisfy customers.
Banking is a sensitive function regulated by strict norms. Banks need to maintain perfect compliance management regarding policies, procedures, and processes. They require constant monitoring, testing, and audits to ensure flawless compliance. It involves exorbitant time and resources.
Competition and Need for Innovation
Banks face tough competition and need to innovate to survive and beat the competition. The best way to stay competitive is to focus on customer needs and constantly improve their services and perform better than the competitors.
#2. Top Fintech Applications That Can Transform Banking
People have numerous banking, investment, insurance, and other financial needs and obligations, but bank visits consume significant time. It is also inconvenient to visit the banks in person and wait in the queue for one’s turn to perform regular banking tasks. Fintech is customer-oriented and aims to solve these customer issues. Here are the top banking and financial technology (fintech) applications that can benefit and reshape the banking sector and ensure security, increased operational efficiency, and enhanced customer satisfaction.
Digital Banking and Mobile Banking
Digital banking and mobile banking are the most popular fintech applications globally. These are advanced banking technologies that enable users to perform their routine banking activities conveniently and faster, including monitoring and managing funds, payments, transfers, withdrawals, and more. Digital banking apps typically offer multi-currency support to ease in-app transactions.
Mobile banking fintech applications provide users a feeling of financial empowerment and security by allowing them to control all their banking needs on the go, from anywhere, anytime. For example, Backbase EBP offers a comprehensive range of digital banking services to their customers/users and enhanced customer experience compared to traditional banking tools.
Loans and Lending
Another popular category in fintech solutions is loan granting or lending mobile applications that enable the users or borrowers to avail of loans. These apps are easy to access, reduce paperwork, eliminate manual errors, and offer enhanced security, for example, TurnKey Lender. The apps help connect lenders and borrowers and automate various tasks to ease multiple processes involved in borrowing and lending. Further, some fintech apps provide instant loans to customers for their online purchases by paying for their online purchases and allow them to pay off the loan gradually.
P2P or peer-to-peer lending is another concept that is gaining momentum in financial services today. P2P lending applications enable both businesses and individuals to lend and borrow money and facilitate quick business loans. P2P platforms offer greater flexibility, convenience, time-saving, and business opportunities to both parties involved.
Insurance Technology - Insurtech
Today, insurance is a basic necessity for medical needs, property, vehicles, or more as it provides financial support during the most challenging times of disasters, including medical emergencies, accidents, etc. It is a challenging task to understand various insurance policies, pay premiums at the right time, and file instant claims during urgent needs and medical emergencies; for example, InsureEdge.
Insurtech or insurance fintech applications help users manage their insurances with ease. These applications act as a virtual insurance agent to guide the users on the various insurance policies, offerings, premiums to be paid, and renewal reminders and ensure that users do not miss out on renewing their insurance on time. Insurtech platforms also act as an online marketplace for insurances of various kinds, including life, disability, vehicle, home, and renters.
The most commonly utilized category in fintech apps is payment processing apps and payment gateways. These two applications collectively ensure secure payments. Payment gateways capture and transfer the users’ credit card data to the payment processor. The payment processor then routes this data securely to all the different parties involved, ensuring the safe completion of payments from the sender to the receiver’s account.
The perfect example of a payment processing fintech application is PayPal. It is an internationally recognized payment platform that integrates payment processing and payment gateway functions. It offers users the facility of easy and secure payments and provides businesses the convenience of receiving payments from the users, irrespective of what payment method they use.
Personal Finance Management
Wise investments made at the right time can help safeguard one’s future and provide financial stability and psychological security. Financial planning is a must, but people hardly get enough time to properly plan their finances and investments in today’s busy routine. Moreover, managing personal finances is not easy and people often require expert guidance for the same.
Personal finance management apps are fintech applications that guide users on appropriate investments and help them make informed financial decisions. These apps enable a unified view of users’ complete financial portfolio summary and financial journey, including bank details, credit summary, investments, and more. These act as a one-place record of users’ financial assets and liabilities for quicker access and easier analysis during emergencies, for example, Mint budget tracker and planner.
Users can better assess their investments across multiple channels and investment opportunities available by leveraging personal finance management applications. Besides, the apps utilize users’ transaction records and other relevant user data to provide better insights into their spending, keep track of users’ bills, manage payments, and help create a budget. Besides, the apps also issue alerts if the user spends more than the target budget. In all, a personal finance management app is an all-in-one financial manager and advisor.
Investment Apps and Robo-Advisors
Investment apps are a subtype of personal finance management apps that focus on investments, for example, Axia. Robo advisors are virtual investment assistants or advisors that leverage artificial intelligence and machine learning to guide users on various types of investments available and enable easy ways to invest in multiple channels from one platform.
Stock trading apps are popular investment apps that provide all stock trading options on a unified platform, enabling the users to buy and sell stocks or mutual funds, for example, PackHedge. These apps offer detailed analytics to help users select the right stocks and mutual funds based on their past performance. Using these apps, even users with no prior knowledge of the stock market can profitably invest in stocks easily and without spending much time.
Tax management processes are complex for businesses and individuals due to the numerous intricacies involved and rapidly changing taxation rules and policies. For taxpayers, timely tax payment and returns filing are mandatory but arduous tasks amidst busy work routines. Businesses and individuals thus depend on tax consultants and agents for tax management.
Tax management software applications act as virtual tax management agents, enabling easy tax filing and management, for example, TaxCalc. Tax fintech applications also remind the users about pending tax payments and returns filing, preventing missouts and delays.
Regulatory Fintech - Regtech
Regulatory compliance is a sensitive function for businesses. Any deficiency or delays in compliance management can lead to severe consequences and loss of reputation. Moreover, the regulatory rules/norms are ever-changing, and it becomes challenging for businesses to keep up with these changes.
Regulatory technology or regtech is another instrumental category in fintech. It leverages technology, big data, AI, and blockchain to reduce financial risk and deliver regulatory compliance processes for various industries, including banking and finance, for example, AssurX. These applications help streamline and automate various compliance management processes, ensure up-to-date information on changing regulatory requirements, maintain accurate data, and remind about compliance deadlines, all on a single platform. Regtech fintech applications are thus a one-stop solution for comprehensive compliance management needs for businesses.
Blockchain and Cryptocurrency
Blockchain is set to transform all industries and is now creating a place in fintech through cryptocurrency. The success of blockchain in the financial sector is primarily due to the security that digital money or cryptocurrency assures, which is the foremost requirement of the financial industry.
Cryptocurrency exchanges are fintech platforms that enable buying, selling, transferring, and storing digital money or cryptocurrency. These platforms provide all services related to crypto transactions and act as a knowledge base for users to understand and learn more about digital money. Blockchain and cryptocurrency are gaining immense popularity globally and laying the foundation for a significant evolution or a complete revamp of the financial sector with digital money in years to come.
#3. Why Is Fintech a Necessity for Banks?
Fintech and banking software offer numerous advantages to banks and customers. Here is why adopting fintech is no longer a choice but a necessity for banks today.
- Fintech offers automation of banking processes, accuracy, time-saving, conservation of resources, cost reduction, and increased operational efficiency.
- Enhanced efficiency and productivity through fintech applications ensure ample time for bank employees, improving employee satisfaction and performance.
- Fintech assures higher security of transactions to the customers, increasing their trust in the bank.
- Modern fintech applications provide AI and ML-based data analytics and customized reporting that helps banks understand customer behavior better and use it as a benchmark for improving services and offering personalized user experience.
- Offering better customer services and user experience through fintech ensures increased customer satisfaction and retention.
- Fintech enables banks to improve their overall performance, enhance reputation, and earn customer loyalty; this ensures a significant boost in profits.
- Through fintech, banks can achieve seamless compliance management without investing much time and resources.
Fintech has a lot to offer to the financial and banking sector as it focuses on enhancing customer experience. Banks are now embracing fintech like never before. Banks must adopt fintech to automate and simplify their operations, conserve resources, better serve their customers, reduce infrastructural & operational costs, and boost overall performance.
As discussed, various statistics indicate that fintech is the future of banking. There are numerous fintech applications that banks can leverage to improve their operations and offer much more to their customers. Perpetual innovation is necessary for survival and growth, so banks cannot and must not ignore fintech anymore.