Today from UIE we talk about a Fintech: what it is, what its strengths are and why it is affecting traditional banking.
A Fintech is a start-up of financial products and services that is here to stay. The strength of Fintech lies in application technology and represents an alternative to traditional banking, since they have the ability to democratize both financing, money management and investment.
Fintech: what is it?
Fintech comes from the fusion of the Anglo-Saxon terms Finance and Technology. In this way, it refers to technological companies that operate in the financial field.
Taking advantage of new technologies, these types of companies have managed to revolutionize the field of traditional financial products and services. To innovate in this field, they use applications for mobile devices, Big Data, Blockchain, Artificial Intelligence, Internet of Things, etc.
Similarly and by extension, the concept of Fintech also applies to the financial services provided by these start-ups. Because the financial field is very broad, both companies and Fintech services can be divided into the following areas:
- Financial advice and automated wealth management through complex algorithms (a clear example are the so-called robo advisors).
- Effective management of personal finances thanks to real-time information and online contracting of financial products and services.
- Alternative sources of financing such as fast online loans or the possibility of carrying out crowdfunding operations through a specialized platform.
- Fast, convenient and cheap payment services through mobile devices or electronic means.
- Entities that apply Big Data to generate value.
- Entities working in the field of crypto-assets.
- Online identification of customers securely through technologies such as biometrics (physical characteristics of users to authenticate their identity).
What advantages do Fintechs have?
The advantages of a Fintech are related to the financial field in which it provides service, although they generally improve:
- Lower transaction costs: because new technologies allow better and more direct connectivity, financial intermediaries are eliminated and there is savings in operating costs. In addition, they also allow a reduction of infrastructures, which also contributes to a reduction in commissions.
- Speed: users can perform all kinds of financial operations in a matter of minutes, avoiding displacements, queues and waiting.
- Flexibility: technology allows you to obtain financing at any time and from anywhere.
- Specialization: companies dedicated to Fintech are specialized in a specific area within finance, being able to offer products and services of higher quality; as well as better customer service.
- Transparency: many operations are carried out in a decentralized way (for example, regarding the Blockchain and cryptocurrencies). There is no manipulation capacity and the information reaches the user in real time.
- Internationalization: operations in different countries and markets is a reality. Previously this was possible, but thanks to financial technology they have become accessible and economical for all types of audiences.
- Analytics: Artificial intelligence enables advanced analytics.
- Consumer experience: the benefits of disruptive technology, added to an improvement in work processes, provide a better experience as a whole.
How do Fintechs affect traditional banking?
The growth of Fintech is being rapid and the data point to further development. Technology in the field of finance is expected to consolidate, given the benefits seen above. In just three years, alternative finance that is nourished by this type of technological solutions has grown by 48%.
The health pandemic caused by COVID-19 marked a turning point, causing a change in our consumption models and an increase in digitalization.
On the other hand, financial regulatory bodies are being aware of this change and contribute to its advancement and dynamization through regulation of the Fintech sector. An example of this can be the PSD2 Directive (Second Payment Services Directive), which aims to modernize payment services in Europe.
In this context, traditional banks, far from seeing Fintech as a threat, are adopting this new system. Strategic decisions revolve around introducing disruptive technologies in the field of finance.
Many banks are implementing this model, and one example is ABANCA Innova, ABANCA’s fintech startup accelerator. Without a doubt, we are approaching a 100% digital banking model.
In short, Fintechs have the capacity to restructure the entire traditional banking sector: process automation, decentralized data management (Open Banking), intelligent messaging, streamlining legal processes (through artificial intelligence, Big Data and machine learning), application of Blockchain and negotiation with cryptocurrencies, etc.
