What is FinTech and How it Enables Banking and Financial Firms to Leverage Technology
What is FinTech and how is it a Game Changer for BFSI firms?
Anybody with a passing curiosity about the world of banking and finance and how technology plays an important role in the operations of such firms would surely have come across the term FinTech.
Used in multiple contexts and with a wide variety of applications, the term FinTech refers to the tools, technologies, apps, software, and other technological platforms that enable banking and financial sector firms to leverage technology for seamless and smooth operations.
Indeed, the term FinTech is itself a combination of the words, Finance and Technology, which indicates how technology can be best used to deliver a pleasant and frictionless experience to the various stakeholders of the BFSI or the Banking and Financial Services and Insurance firms.
Whether one is talking about front end retail banking software or backend and high end algorithmic trading platforms, FinTech would be extremely beneficial in actualising efficiencies from the economies of scale and synergies from the integration of discrete and disparate functions.
One can also go as far as to say that without FinTech, banks and financial services firms would be hard pressed to deliver the gamut and scale of their services that they do now.
How FinTech works and Why the BFSI sector uses Technology to Drive its Business
Technology has always been known to be a game changer and especially so for BFSI sector firms. Indeed, banks and financial services firms were the early adopters of technology since the time the Digital Age began in right earnest in the 1970s and 1980s.
As technology accelerated throughout the 1990s and delivered beyond the realm of possibilities in the new Millennium, again the BFSI sector was the first to adopt technology and leverage its potential to be the source of sustainable competitive advantage.
The point here is that FinTech delivers because banks and financial services firms need the Scale, Speed, and the Synergy in addition to Place, Price, and Products that are tailored to their specifications.
FinTech, by virtue of being attuned to the economies of scale, delivering with lightning speed and integrating operations leading to synergies can provide such benefits to the BFSI firms.
In addition, it also eliminates the need for geographical and place constraints as well as being able to provide low cost or at least services at prices that are within the budgets of most BFSI firms, apart from having a wide variety of products tailored and customised to the needs of small and large firms alike delivers on the 3Ss and the 3Ps as described above.
Is Runaway and Out of Control FinTech a Threat to the Financial System?
Having said that, there are also some concerns over how the way in which FinTech is evolving now. While front end functions and back end operations, when automated and integrated, do lead to gains for all stakeholders, the concerns are over the High Speed Algorithmic Trading Platforms that work on 24/7 basis and which are programmed in such a way that prudence and otherwise cautious human interventions are replaced by soulless and purely transactional machine processes leading to trading for the sake of profit and nothing else.
Moreover, concerns over privacy and intrusion into personal spaces of the customers of the BFSI firms by automated bots and robotic callers is also raising alarms over the extent to which we can allow FinTech into our lives.
What is more worrying is that some of the FinTech platforms are so complex and can be unravelled by a select few can lead the banks and financial services firms down the path of doom as was witnessed during the times of the Great Recession in 2008.
This is the reason why any FinTech conference usually has a session on how best the human element can be made to override automated machine processes.
What does the Next Generation of FinTech platforms have in Store for the BFSI Firms?
On the other hand, the next generation of FinTech promises to literally deliver the Moon to the BFSI firms in terms of technology platforms that provide One Stop solutions to the customers.
For instance, the widely anticipated One App for all banking and financial needs of retail customers are already in the works in many BFSI firms.
In addition, both Corporate and Private Banking is set to become easier for customers with the latest FinTech tools.
Apart from this, FinTech has arrived at a stage where it can be deployed for preventive measures such as using technology to raise Red Flags that prevent the Black Swan events such as unanticipated banking failures.
What more, using Blockchain, FinTech can be used to create a new generation of data stores that are peer verified and where chances of fraud and other unethical events can be minimized.
Perhaps the biggest promise of FinTech lies in the way it is being used to improve lives of the less privileged.
By making handheld Tablet devices and Smartphones gateways for banking and financial services activities, the problem of access and affordability can be resolved.
Why FinTech is the Best
As can be seen from the discussion so far, FinTech has revolutionised the world of banking and financial services.
As for the concerns rose, it is imperative that stakeholders prod the developers and the banks and financial firms to have inbuilt safeguards in the FinTech platforms.
Moreover, FinTech can also be used to better the lives of the less privileged sections of society.
Therefore, it is the case that in future, we would be seeing more of the power of FinTech in our daily lives.
To conclude, FinTech has been and is and going to be a game changer for BFSI firms.
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