Fintech

Fintech vs Banks: Changing Face of Financial Services

The constant technological advancements have shifted the paradigms of conducting business among the Indian population as people are more focused towards opting for technology-driven alternatives for making their business operations, financial requirements and overall lifestyle easier, and the banking sector is not an exception to the same. The innovations like embedded finance, payment gateways, and crypto exchange, among others, have completely changed financial services where the customers have a choice between fin-tech and banks, bringing traditional banks into a tough spot.

The article discusses the various aspects of Fintechs Vs Banks Changing the Face of Financial Services to help customers choose accordingly.

Fintech Vs Banks: Meaning

Fintech Vs Banks can be differentiated on the basis of meaning, as discussed below –  

The term fin-tech is formed through a combination of two words, financial and technology; therefore, the term fin-tech can be best introduced as a technology-driven financial service which aims towards the automation and improvement in the use and delivery of financial services in the financial sector.

Banks, on the other hand, are the traditional financial institutions possessing the license to accept deposits and give loans, including other financial services such as safe deposit lockers, wealth management, and currency exchange. 

What are the Challenges faced by banks in the tiff b/w Fintech Vs Banks?

The challenges faced by traditional banks after the introduction of fintech that led to a fall in their demand are –

Monotonous Business Model

The business model of the traditional banks is quite monotonous as it requires the customer to be physically present to deposit the money, request for loans and some banks still opt for manually verifying the identity of their customers during onboarding despite the introduction of KYC services, whereas fin techs operate virtually making it a challenge for the banks among fintech Vs banks.

Regulatory Requirements

The banks used to have an edge over the fintech due to them being highly regulated by the appropriate authorities. However, the scenario has drastically changed post the pandemic as most people were bound to work remotely owing to the safety measures which have encouraged people to shift towards digital banking due to fewer formalities and complexities involved in the same, catering to the growth of the fintech industry.

Growth Potential

The factors discussed above and some other factors have led to increased growth potential in the fintech sector as the overall fintech market opportunity in India is estimated to be $1.3 Tn by 2025, growing at a CAGR of 31% during 2021-2025, making the growth potential of fintech to be much high than banks which can be a threat for them looking at the statistics mentioned herewith.

How is Fintech changing the Face of Financial Services?

In the dilemma b/w Fintech Vs Banks, fintech is changing the face of financial services in the following ways –

Asset Management

Fin techs have aided in asset management through innovations like Robo advisors, which use technology to provide low-cost investment advice and services, resulting in the rendering of their services at a lesser cost than the traditional banks. Additionally, fintech is using new technology to provide innovative investment products. For Instance, the companies are providing equity-based crowd-funding to private companies allowing individual investors to invest in pre-IPO companies, which was previously available to just institutional investors.

Easier Access to Financial Services

The alternative financial services provided by the fin-techs act as an added advantage for the customers by making access to financial services a lot easier than the traditional banks. This is especially beneficial for the underserved populations who don’t have access to traditional banking services and products that are now made available with the help of fin-techs without the hassle of visiting the banks.

Affordable Financial Services

Along with making financial services more accessible, fin-tech has also facilitated in making these services more affordable for customers as well by offering financial products and services at a lower cost than that of the banks. This can be a lucrative option for customers intending to save money, marking it as a significant change in the financial landscape.

Competitiveness within the Financial Sector 

The innovative financial products and services provided by the fin- techs have led to an increase in the financial sector that can be quite beneficial for the customers as it can result in a reduction of the prices of such products and services along with an increase in the choices available to them. For Instance, financial products like peer-to-peer lending and online investigating have provided better choices to customers, which can help cater to their dynamic financial needs.

Transformation in the Interaction among Financial Institutions  

The convenient and user-friendly solutions offered by the Fin-techs have drastically transformed the manner of interaction of the customers with the banks making it more simplified than ever. Recent trends like mobile banking and embedded finance in the fin-techs have helped customers manage their finances effortlessly and efficiently.

Improvement in the Operations of Financial Institutions

Financial intuitions have started approaching the fin-tech solution for improving their operations and maintaining healthy competition in the financial market, which includes the adoption of new technologies and restricting the business models which can significantly impact the overall operations of the financial institutions.

Enhanced Transparency and Trust in Financial Services

There were times when the banks were considered opaque and untrustworthy, but the introduction of fintech has led to a shift in this mindset. The reason for such a shift is the transparency tools provided by the fintech, which allows the customers to track their money and the manner in which the technology is being used. In addition to this, fintech is more responsive to customer needs as compared to traditional banks.

Provides Better ways of utilizing Financial services and products

The fintech empowers consumers to make better decisions regarding their financial products by providing them with better ways of saving, investing and making payments, along with better tools for managing their finances, leading to more financially aware and empowered customers.  

New Market Opportunities for Financial Service Providers  

Fintech provides new market opportunities by introducing new ways for people regarding capital access, which leads to the creation of new opportunities for lenders and investors making it easy for people to start and operate businesses and open up new markets for the providers of financial services. 

Driving Innovation in the Financial Sector

The fintech industry is driving the financial sector by constantly looking for better ways to enhance financial products, pushing the entire industry to move forward and find ways to stay in the market, which can help in the overall growth of the financial sector.

Conclusion

The FinTech^[1] sector of India continues to experience tremendous growth opportunities. One of the driving factors in the same could be the digitisation and disruption of allied ecosystems and the emergence of the next wave of technology. This sector has always positively impacted financial inclusion; there is an excellent opportunity for FinTech players to drive innovations, better partnerships and transformations for inclusive and sustained economic growth, making it a better option than the traditional banks of the country, which can help to clear the confusion of choice between Fintechs Vs Banks.

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