The growing importance and influence of fintech

Fintech is not a new concept. Fintech 1.0 saw the emergence of the transatlantic cable in 1866 and the introduction of one of the most widely used plastics in today’s world, the credit card, in the 1950s. ‘a constantly evolving concept since it saw the rise of the world’s first digital exchanges and e-commerce businesses.

At the start of the 21st century, most internal banking processes were fully automated and digitized. Fintech 3.0 has seen the creation of many online payment applications like Google Pay and has revolutionized the financial world.

The impact of fintech in our daily lives is inevitable. To understand the depth of its impact, just look at how things worked in the past compared to now.

Just a few years ago, you had to go to the bank to check your bank account and get a statement. In order to send money, a minimum of three days was required, which slowed down payment processes. Now you can get all your bank account information at your fingertips.

Online banking has changed the way things work in banking. Not only that, but instant money transfers are the way to go.

Payments are made in minutes or even seconds. If you were to focus on India, you would notice that more and more stores in cities and suburbs are now accepting online payments. Smartphones have become a huge contributor to the advancement of fintech.

Fintech 3.0 was fueled by the global financial crisis of 2008. It exposed serious problems and weaknesses in regulation and financial services. Fintech stepped in with a solution and continues to rapidly revolutionize banking systems across the world.

The Growing Impact of Fintech

One of the main advantages of fintech is its availability. It provides technology that can be used from anywhere in the world. It has also proven to be a more efficient and cost effective way of doing banking. Not only does this reduce the need for physical banks – reducing costs, but it also reduces the risk of error since the processes are all automated by various algorithms.

Fintech companies focus on providing one-stop solutions to fill the gaps in financial needs at a more cost-effective budget than traditional financial institutions.

Many fintechs have also focused on financial education, which helps people better manage their money and finances – helping them reduce debt and teaching them the importance of saving and investing.

One of the biggest innovations in the fintech industry has been neobanks – a kind of digital bank that has no physical branches but is entirely internet-based. They do not have a banking license but rely on banking partners to provide banking services.

In recent years, more Indians have trusted online payment methods than ever before. With one of the fastest growing economies in the world, India has undoubtedly become one of the fastest growing fintech hubs in the world. Not to mention that the pandemic and containment have not only allowed the technology to thrive, but have supported it immensely.

The entry of neobanks

Traditional banks are struggling to fill the void of consumer expectations – this is where neobanks come in.

They not only try to fill this gap, but also to do it cheaply. One of the most revolutionary ideas adopted by neobanks is the use of RPA (Robotic Process Automation) systems. It is the backbone of any operation carried out within neobanks.

Using this system effectively reduces human labor, making it more efficient and less error-prone. It is also a central system of how neobanks use data to deliver the most efficient and personal solutions to their customers. Data monetization allows them to collect and analyze customer data to recognize customer behavior.

Volume, variety and velocity are the three main properties of data. Volume is the amount of data collected; variety refers to the number of data types, while speed refers to the data processing speed. These three properties are managed by the neobank’s AI/ML system.

The challenge here is to analyze the data in the right way so that the accumulated data can be used for action and not just for information. Neobanks aim to ensure data to action takes priority over data to information

Data monetization amplifies efficiency to avoid fraud and obtain a model of human behavior for each consumer by continuing to obtain and collect data when consumers use the bank’s services.

It allows the system to create a hyper-personalized profile of customers which, in turn, proves effective in delivering highly personal solutions.

AI and business process reengineering are improving the profitability of neobanks. Since neobanks are completely online, customer fees are greatly reduced and they aim to charge minimal to zero transaction fees.

When everything is digital, it greatly reduces the need to queue and fill out numerous documents; not to mention that the use of RPA allows faster data collection for neobanks. This new digital era and the use of artificial intelligence will improve the propulsion of data to action in order to provide the best service to all customers on a personal level, with a reduced cost for institutions and customers.

Being entirely online, neobanks make it very easy to create an account. You can open an account in just a few steps from the comfort of your own home. They aim to provide a user-friendly interface, making it easier to use for everyone. Because they use AI, they are also available 24/7.

Moreover, they provide an immediate report. Money transfers are easy, fast and reflected immediately in the account.

They allow customers to get a loan in one click and they can revolutionize e-commerce businesses. They focus on providing a seamless experience by simplifying and equipping automated service features such as bookkeeping, GST compliance taxation, balance sheet statements, insurance, and lending with just a few clicks.

Navigation challenges

However, one of the biggest challenges neobanks face is gaining trust. With the growth of fintech, cybersecurity is a growing concern. The massive growth of fintech companies and markets has led to increased exposure of vulnerabilities in the fintech industry and made it a target for cyberattacks.

Additionally, traditional banks provide a physical branch and employees, creating personal contact and making customers feel more secure. Although neobanks do their best to provide personalized services to all their customers, they fail to provide a personal touch.

Despite these challenges, neobanks are actively trying to tackle these issues head-on. In 2020, India had a smartphone penetration rate of 54%, which is expected to reach 96% by 2040. With this new, ever more demanding and ever-changing rise in technology, individuals and businesses require a more seamless experience.

This is where the partnership of traditional banks and neobanks has the potential to work together to meet these needs and demands, delivering a beneficial outcome for customers and the banking industry.

Fintech actively tries to provide a more secure interface and build trust over time. While revolutionizing the banking industry, neobanks are also actively trying to earn that trust by partnering with traditional banks.

The next few years will be among the most crucial for the banking industry, as neobanks continue to change the way banks work, inevitably changing the way businesses work; transform the financial services provided with each new rise of Fintech.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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