How FinTech is Reshaping the Banking Industry?

*Medium

Our world is now structured to allow “FinTechs” to drive competitive advantage. These ecosystems usually come about through partnerships between governments, financial services providers, and startup companies where each partner provides or accesses other necessary services.

A FinTech ecosystem is a systematic interconnected set of systems that comprises components such as startups, technology providers, consumers, investors, regulatory bodies, and other financial institutions all striving to innovate.

1. Customizable Banking

By making a personalized platform for the customers to build their own unique fintech and banking experience which will feel like their personal playlists.

2. Connected Banking

Going beyond a flawless omnichannel experience so that every interaction stays smooth, whether on mobile, desktop, or voice—should in turn be made seamless and continuous in embedded finance. Previously, customers had to juggle passwords and repeat their stories for the customer banks to remain unchanged regarding the time and sanity of their customers. Connected fintech and banking encompass cryptographic credentials, biometric security, and encrypted data sharing while enabling safety and transparency.

3. Online Banking

In online banking, fintech and banking focused on humanizing financial brands by ensuring that central online banking should stand for technology in providing human empathy which will increase humanity without substituting that. It is done with the collaboration of sharp algorithmic AI with empathetic human counseling.

4. Contextual Banking

Traditionally, banks faced challenges in providing real-time, personalized advice to customers. However, with advancements in artificial intelligence (AI) and machine learning, this is changing. AI acts as a ‘whisperer,’ offering expert, context-aware guidance to customers. By leveraging predictive analytics, banks can anticipate customer needs and deliver timely, tailored services. This approach leads to hyper-personalized experiences, aligning financial products and advice with individual customer requirements.

5. Green Banking

In the past, sustainability was not a primary focus for many banks. Today, Green Banking emphasizes Environmental, Social, and Governance (ESG) criteria, reflecting a commitment to sustainable financial practices. By promoting transparency and accountability in transactions, Green Banking serves as a beacon of purpose. Integrating ESG considerations into financial decisions allows banks to meet the growing demand for responsible investment options, aligning with customers’ values and contributing to a more sustainable financial ecosystem. FT.COM These trends highlight the financial industry’s shift towards more personalized and sustainable practices, driven by technological innovation and a growing emphasis on ethical considerations.

6. Social Banking

The main aim of social banking is to transform the customers into communities, therefore to avail peer-to-peer knowledge sharing more people can learn online fintech and banking through the chain of learning from their surroundings. With this new functioning, the mentorship is circling in savers and connecting with novice investors.

7. Lifetime Banking

In an industry often fixated on quarterly earnings, adopting a long-term perspective by investing in a customer’s lifetime value is transformative. Banks that embrace this holistic approach move beyond mere transactions, fostering deep customer loyalty through sustained care and personalized services. Understanding and enhancing Customer Lifetime Value (CLV) enables financial institutions to implement targeted strategies that boost profitability and strengthen long-term relationships.

*BankBuddy

In the world of fintech, blockchain technology is the key factor that involves the decentralization of the system to enhance the transparency, security, and capability of banks in financial transactions. The application is fit as a fiddle in cross-border payments, fraud detection, and smart contacts.

According to HTF Market Intelligence, the Global Blockchain in Banking & Finance market is expected to grow from 15 Billion USD in 2024 to Global Blockchain in Banking and Financial Services Market Size, Outlook, and Forecast 2024-2032 USD by 2032, with a CAGR of 20% from 2024 to 2032.

1. How Blockchain is Used?

With the development of blockchain technology in banks, consumers might accept their transactions processed in minutes or seconds–now this is the time of just adding the block to the blockchain, regardless of the holidays and timing aligning the funds’ transfer also. The settling and clearing process had established a smooth system for all the commuters. Blockchain technology is working in diverse verticals like currency, healthcare, property records, smart contracts, supply chain, voting, etc.

2. Pros of Blockchain in Banking

Amid the complexities and challenges of effective record-keeping, maintaining correct records and data has become more vital for users. From concerns about privacy and security to lowering the processing of fees, blockchain technology is hitting up the fintech and banking ecosystem.

Below mentioned are the benefits of blockchain:

• Accuracy of the chain: The transactions on the blockchain technology network are verified by the numbers of computers and devices, this robotics verification removes all the manual hands which leads to less human error and an appropriate record of information.
• Cost Reduction: Traditionally, in the banks to maintain the transaction the consumers have to sign it but blockchain technology has been established as a boon for the banks which eliminates the need for third-party verification associated with their costs.
• Decentralization: Information will not be saved in any central site by the Blockchain. Instead, multiple copies of that information are made and spread on a network of computers. When a new block is added to the chain, every computer on the network where this blockchain is installed updates its own to take into account the modification. This way a piece of information gets distributed in a network rather than keeping it in a limited central database, making it immensely harder to alter it.
• Private Transactions: Blockchain technology regulates public databases, which is better understood by the connection of the list of the network’s transactions history. Moreover, the users can have access to the details of the transaction also. It is the myth that blockchain technology networks like Bitcoin are fully anonymous” They look pseudo because of the viewable address that could be associated with the user if the provided information gets out.
• Secure Transactions: This happens after a transaction is entered into the blockchain: the blockchain technology network must validate that transaction. Following confirmation of the transaction, the latter is appended as a record to the digital block. All the blocks keep their specific hash and the hash of the block that links to the block before it. Consequently, each of the network-affirmed blocks cannot be modified.
• Transparency: A lot of blockchains are open source. This means that the code can be seen by everyone. Auditors can then audit cryptocurrencies such as Bitcoin for security purposes to see if they are safe. There is no authority now as to which person or group controls Bitcoin’s code and its editing. That is why any person can suggest any change or improvement to the system.

AI has transformed the way banks undertake fintech and banking activities-from routine task automation to high-end analytics for driving decisions. AI is not only making things efficient but also changing the mold of customer engagement with personalization and superior risk management.

*Avenga

Artificial Intelligence in banking is the overview of how machine learning, data analytics, and logic are used in financial services. Majorly, it is used to streamline operations, enhance customer satisfaction services, and improve decision-making. We have broken down the application usage of AI in fintech and banking.

1. User Inquiries

Users no longer need to endure a lengthy and tedious search to access features like spending reports or account balances. With the integration of fintech and Artificial Intelligence (AI) in banking, these tasks can be completed instantly. AI in banking enhances service convenience, saves users time, and reduces the effort needed to manage accounts.

2. Financial Management

AI-based chatbots are trained on large datasets and can provide advice and assistance for the management of finances to clients. People can interact with the chatbot to get advice on how to improve their financial handling and track the trends of investments and financial opportunities in the industry from the consumer’s experience. AI turns out to be a virtual financial advisor, providing free, data-driven counsel to maximize clients’ financial strategies.

3. Management of Credit Score

AI banks also help monitor credit scores. Customers can consult chatbots anytime for advice on improving their credit scores. From a business perspective, AI-powered solutions may analyze enormous financial data like transaction records or credit histories to identify opportunities and offer insights to bank customers.

Open Banking: The New Frontier

Open banking has eliminated the need for traditional third-party verification methods in banking. It enables the sharing of customer data with finance sectors such as fintech companies, merchants, and digital platforms. This openness encourages real-time payments and seamless financial transactions.

Keeping pace with current trends will open up exciting possibilities to tackle challenges for both consumers and banks in the financial sector. However, this development comes with its pros and cons.

Here’s a breakdown of the issues and suggestions for improvement:

1. For Consumers

• It guarantees a bright future for consumers of open banking, as it allows them in the immediate future greater access to necessary and valuable fintech and banking. By sharing their financial data, customers access personalized products that will tend to their busy lives.
• Such unified financial data can be quite useful when advising customers on the best way to handle their finances or on the best places to save money for maximized returns.
• Open banking allows the customer an increased say over his/her very personal data. For example, the APIs are so configured that ONLY YOU can have the login information. Unless you share that login information with someone, NO ONE will be able to access it. Customers control, how much and by whom, access to their financial information; an example of this would be payments to only go through once customers approve them.

2. For Bankers

• Open banking provides advantages to consumers while exploring additional revenue streams for banks and financial institutions.
• The more financial data is available to banks and financial institutions, the better they will be able to derive insights about their customers to develop targeted and personalized financial solutions.
• It opens the door for newer players into the industry, so we will probably expect intense competition among the new fintech and banking startups. Ultimately, this will result in more innovative and high-quality products, with competitive pricing available to consumers.
• Openness to results matters in competing for a few benefits for both consumers and emerging revenue streams for banks and financial institutions.
• Thus, banks and financial institutions could get better customer insights with more customer financial data, thus making financial solutions increasingly targeted and personalized.
• Allowing new entrants creates competition, and one may expect very stiff competition among the new fintech and banking startups. Eventually, it will make available progressively improved and innovative products at competitive rates to the consumer.

Open banking is not only redefining how banks and financial institutions used to operate but also making accessible the very data that some of them had long guarded. However, he is opening up very serious risks.

Despite the advantages of Open banking APIs, they are not entirely devoid of risks. As data becomes increasingly interlinked, the upcoming possibilities of trespass such as data breaches, hacking, or unauthorized access to a customer’s account through malicious third-party applications rise exponentially. Thus, keeping the customer’s sensitive information safe becomes extremely critical for financial institutions and merchants.

Many versions of regulations under the title of PSD2, GDPR, etc., are available for ensuring data safety from any open fintech and banking platform; therefore, an open banking system should comply with these regulations. At the same time, it becomes difficult for all organizations to maintain compliance norms across varied regions because of the constantly changing regulations.

This is the most outstanding tendency for future transactions, with contactless payments emerging. Tapping a card or scanning a QR code is a basic essential for retail and financial systems. Visa research indicates that contactless payments are used by 78% of global consumers, and numbers are rising further in Europe and Southeast Asia. These transactions use NFC and QR code technologies, slowly becoming a norm as they are easy and secure to use.

These are only a few of the ways the entire banking sector has evolved with FinTech. We believe it is just the start of something wonderful and that there is a lot more to come in its true sense.

If you want to indulge yourself in the Fintech and banking Industry, you might complete a PG Certificate Programme in Financial Technologies (FinTech) from IIM Nagpur via Jaro Education’s platform. The FinTech certification course provides deeper knowledge about FinTech and banking technologies such as Blockchain, AI, Cryptocurrencies, Machine Learning, etc. It teaches you about various FinTech and banking avenues, such as Payment Systems, InsureTech, Neo Banking, Lending Tech, and many others. It is guaranteed that this one-year course will take you on a path to a bright, prosperous, and growth-oriented career in banking.