Fintech has taken the world by storm in the past few years, especially as a response to the 2008 financial crisis. Startup organizations with an eye on the financial services industry continue to crop up, and their advent has changed how customers interact with the banking world.
What's the impact of fintech on banking? The general consensus is that fintech organizations – startups and otherwise – are good for the banking industry in the long term and for the consumer themselves. Thanks to these organizations, banks are adapting the ways in which they do business and how they fulfill their goals in regards to their customers.
How does fintech enable change?
The emergence of fintech has had a profound impact on banking and the global economy. A recent article in The Economist details how fintech is going to – and is currently – changing the global landscape for the financial services industry for the better:
- Fintech will cut costs and improve the quality of financial services for customers, because they can offer more catered loans and are working with customers segments underserved by traditional banks. Banks will have to keep up.
- Fintechs are more efficient in the underwriting process, using data gathering, machine learning and analytics tools. This is forcing banks to become better at their underwriting process and leading to more unbundled product offerings.
- Since fintechs aren't bound by the same regulatory restrictions, it's more likely to broaden their reach into higher yielding, riskier lending opportunities.
"[U]pstarts will force banks to accept lower margins," The Economist stated. "Conventional lenders will charge more for the services that the newcomers cannot easily replicate, including the payments infrastructure and the provision of an insured current account. The bigger effect from the fintech revolution will be to force flabby incumbents to cut costs and improve the quality of their service. That will change finance as profoundly as any regulator has."
Cutting costs and improving quality
As previously mentioned, fintech has the ability to cut costs for customers while simultaneously improving quality, which means that more and different kinds of people will be able to apply for – and receive – loans, which broadens the economic scope. These kinds of organizations can offer more catered loans and are working with customer segments traditionally underserved by the banking industry.
This branching out of the customer base just means that banks will have to keep up with fintech – but banks have a lot to live up to in other regards, as well. One of the biggest reasons fintech is so far ahead of banks is the fact that they have a more efficient underwriting process – using analytics tools to more accurately predict risk and price loans.
The importance – or absence – of regulation
Fintech has been a key part of the response to the 2008 financial crisis, as more regulations come down the pipeline. According to Deloitte, fintechs are currently subject to government supervision under organizations like the Federal Trade Commission, but they aren't strictly governed by the same regulations as banks. Therefore, they are more likely to broaden their reach into higher yielding, riskier lending opportunities. This essentially means that the global economy will need to change to accommodate the new ways fintech companies are operating.
For more information about how fintech, data analytics and automation can help financial institutions improve their operations and contribute to the growth of the global economy, get in touch with the experts at Brilliance Financial Technology today.