How Fintech Affects Traditional Banking System?
If you are transferring money to your family or friends through an app on your mobile, it’s probably because of “Fintech”. Fintech is an abbreviated term for financial technology that has evolved as a digital platform and performs cashless transactions for money transfer, lending, insurance, borrowing, and financial planning. Nowadays, people expect ease and convenience to get a loan or transfer money in a quicker and more efficient way. In this blog let’s see how a digital platform works and what are the services fintech does?
Introduction of Digital loan
At some point in time, we would have approached traditional banks to avail of a loan for our emergencies and also for other purposes. The experience would have been nothing short of an unpleasant one due to a time-consuming paper-based loan approval process. With the help of technology, the whole process has been carried out digitally and get the loan approved without even visiting the bank. Some companies don’t even require collateral during the initial process. The digital banking infrastructure brings in more transparency between the lender and the borrower. They both can learn the status in real-time, check the total loan repayment amount, due dates and the borrower can also get timely-reminders to pay back the loan. Apart from banks, Non-Banking Financial Companies (NBFCs) are another important player in the market.
Non-banking financial companies (NBFCs) are a business firm with limited license authority compared to the traditional banking sector. So, the Non-banking financial companies have adopted Fintech to grow their business by providing smart and systematic products to the consumers for lower interest rates than compared to banks, even some of the banks started to adopt digital platforms to be on-trend in the market. Earlier, people who didn’t have a bank account are now opening bank accounts by acquiring digital apps. Different NBFCs have different strategies to lure the consumers, some NBFCs also have tie-ups with corporates to reach more youngsters who are working in top MNC’s with a good salary to sell their products like a loan, insurance, credit card.
For example, if you join an MNC company, the company has a tie-up with a particular bank and the bank opens an account for you and they will ask you to open an advance salary account. From their point of view, you would be staying in this company for quite a long time and their job is to retain you.
Other companies adopt partnership-based and point of sale financing with online and offline mode; some even have tie-ups with banks. Only a limited percent of banks can handle loans digitally from end to end. Additionally, giant players like Google, Amazon, Facebook are indicating their interest in digital transactions and financing infrastructure. If they take up lending platforms, definitely these companies could become competitors to banks and NBFC startups. These companies have millions of users globally if you trust to post a picture of yours on Facebook or order groceries through Amazon, why won’t you hesitate to choose these apps to get a loan?
So, what worries the banks is that these newcomers have the capability to perform the parts of banking, the only thing they can’t do is take deposits from consumers because of limited license authority. If some change happens in the future, most of the bankers will lose jobs, and unemployment may increase in the banking industry. It opens new job opportunities in the fintech sector, where people with better tech backgrounds will be in demand.
What are the other services Fintech can do?
Earlier, we have to visit banks in-person to perform any transactions. It's not needed anymore. Internet banking and mobile applications have enabled us to perform all activities without even stepping out of your home.
Digital finance infrastructure has opened a new fundraising opportunity like crowdfunding. If you want to raise funds for a project digitally, it is possible through Crowdfunding platforms where the entrepreneur can post the details of the project, and the interested investor can fund their project. Robo- Advising is the revolutionary new approach to wealth management. Many wealth managers are in target because of the Robo-Advisors platform to manage consumer assets which are automated.
Due to the rise of digital platforms in the financial sector, data privacy is a major concern, cyber-attacks become a bigger threat. It will be difficult to use online apps for people who lack a technological perspective.
People who have not opened a bank account previously, it is reported that many people have opened bank accounts after the introduction of Fintech. This introduction has achieved high profitability and has reduced the operating cost. It functions through strategic drivers which have given customer satisfaction and experience. The digital market is growing faster, people are accustomed to faster ways of evolving technology in the financial market.
