Financial Technology's Impact and the Future of Retail Banking

This report critically evaluates the transformative impact of financial technology (FinTech) on retail banking operations. It discusses various technologies such as smart chip technology, biometric sensors, artificial intelligence, mobile banking, e-wallets, marketplace lending, and customer service chatbots, highlighting their benefits and drawbacks. The report also examines banking firm theories, particularly the fractional reserve theory, and addresses challenges like cybercrime. It emphasizes the need for banks to adapt to changing customer needs and leverage data analytics to improve performance and customer satisfaction. The analysis includes data on the growth of online transactions and the increasing reliance on digital solutions in the banking sector.

Individual coursework

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
Critically evaluate how financial technology is changing retail bank operations.......................2
Describing baking firm theories that help in future of retail banking.........................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
In the recent times, it has been identified that with a rapid increase in digitization,
technologies have gained their importance and this in turn causes positive impact over the
banking industry. Moreover, there are range of examples used by banking industry in order to
improve the overall performance and retain customers which include digital lending and mobile
banking, insurance, trading etc. Thus, financial technology i.e. Fintech is being massively
employed to assists diverse sectors of an economy as well as society. Further, the present study
also shed a light upon different technologies used by banking industry in order to improve their
operations. This in turn helps a business to gain a strong competitive advantage and causes
positive impact over the business performance. The report will critically evaluate how financial
technology is changing the retail banking operations and along with this, with the help of
theories of a banking firm, future of retail banking is affected.
Critically evaluate how financial technology is changing retail bank operations
Financial technology has completely transformed the art of providing best class services
to the customers by convergence of both finance and technology that also change the future
response. Thus, it can be stated that FinTech has already started revolutionary banking and it is
transforming the entire banking system from a branch specific process to a various different
digital channel like online, social and mobile banking. This is evolved in 21st century where
entire business is depending upon advance technology so that better financial service can
provide. This in turn also reflected that it helps to improve the customer service and raise the
business service as well.
There are lists of technology which is used by the retail banking industry which in turn
reflected that it is changing the financial industry. Thus, these are as mentioned below:
Smart Chip technology: It is an ATM cards which have significantly assists in
minimizing the financial loss that might be occur in case of any mishaps. This is related to EMV
technology that is embedded in chip and with the help of one-time password for each transaction,
a customer can withdraw the money. Apart from this, the code is valid only for one transaction
and also increases the security (What is Fintech and how it has impacted banking? 2021).
However, it has been critically valuated that if an individual forgot pin, then it causes

unnecessary hassles and trouble. Though, bankers constantly looking for ways to overcome
thefts and frauds in order to reduce the chances of theft. Along with this, as compared to smart
chip, the magnetic stripe technology uses same pin for all transaction and this in turn making it
quite vulnerable to frauds as well.
Biometric sensor: It is another important Fintech which helps to provide effective
transactions to their customers and also this technology simply eliminates the need to carry cards
and not even need to remember pin as well. Beside its convenience, it has been analysed that
these advancements make ATM secure than ever which will be able to access account without
any password. It is so because it uses integrated mobile application, fingerprints sensor and eye
recognition in order to determine account’s owner (Palmié and et.al., 2020). However, on the
critically aspect, it has been identified that this technology might cause an error when any its
system does not work. Thus, it has been identified that with the change in advance technology,
there is a need to provide those facilities to their customers but it also has many negative effects
which should also be considered.
Artificial Intelligence: It has become one of the integral part of a financial technology
services and it is mainly used for fraud detection and generates alerts whenever any fraudulent
transaction occurred. By considering the negative aspect, it has been identified that time of
detection of attacks is becoming quite difficult when attack become sophisticated as day passes.
This in turn consume lot of time and money where chances of losing customer data increases.
That is why, to minimize such issues, AI is introduced which assists to improve the banking
operations by complying with different AI technology (Coetzee, 2018). Thus, it can be stated
that with the help of AI, banking industry is able to save time and money, along with this,
chances of frauds also decrease as the years passes.
Mobile Banking: The increase use of smartphones which has forced banks to provide
mobile banking facilities to the customer as per their convenience. That is why, almost each
individual have their own bank application which provide complete details regarding to their
accounts. Thus, it reflected that such application provides quick access to the funds and as a
result, users can perform different banking function like quick bills, check deposit, account
balance. On critically note, it has been identified that due to server down, customer do not take
any advantage which leads to delay the entire services. Overall, it can be stated that with the help

of mobile banking, most of the customers saves their time and this in turn causes a positive
impact over their health and generate a better outcome regard to customer service.
E-wallets: This Fintech has provided effective facility to their customers which in turn
help people to save their time. Also, the immense growth of e-wallet is an another indicator
which is the rise of FinTech financial service such that Samsung Pay, PayPal, Android Pay are
some of the common and major e-wallet companies who are focused upon rewards points so that
they provide better facilities to their customers (Phan and et.al., 2020). Thus, with the huge
success, most of the banks understand the importance of e-wallet and that is why, it is considered
as a collaborative measure in order to embrace technological advancement. However, on the
critically side, it has been identified that due to extra charges, most of the banks do not use this
financial technology because many customers are not ready to pay charges for doing transaction.
This in turn might affect the bank’s reputation and decreases customer base as well.
Marketplace lending: It is a platform for online lending which is directly connecting to
consumers or those business who seek to borrow money with investors willing to buy. Further,
banking sector is huge and it always require different investors so that company can run in an
effective manner. That is why, in this busy schedule, it is quite difficult for business to select
investors and that is why, online market place lenders uses different modes to generate revenue
and increase the customers service as well. Hence, this in turn also assists to generate a better
outcome and provide ways to improve the overall performance of banking sector (Li, Spigt and
Swinkels, 2017). However, it has been critically evaluated that due to change in investor’s views
this cause a direct impact over a business performance and this in turn causes adverse impact for
a business. That is why, it can be stated that this financial technology mainly assists business to
improve the performance but simultaneously it also have negative impact which need to be
considered before making any decisions.
As per the Federal Reserve report data, it has been analysed that in 2016, the online
transactions are increases by 3 thousand million as compared to 2015. This in turn reflected that
most of the customers and citizens are focused upon online transactions. This in turn help to
increase the overall performance and saves time as well (Knezevic, 2018). That is why, it is
expected that at the end of 2030, entire world will be depend upon online transaction because it

is more easier to use along with safe investment or transaction. This Fintech help bankers to
improve the overall performance and attract new customers towards it as well.
Customer service chatbots: One of the most trendy feature in financial technology which
is now become a popular. It is nothing but a bits of software which interact with human and
solve their queries and uses machine learning. It is highly efficient because it handles query of
customers and satisfy their needs as well. Further, it has been identified that this Fintech is
mainly perform other functions like Bank of America’s chatbot Erica which provide investment
advice to their customers. This in turn reflected that most of the banks are mainly dependent
upon this which in turn assists to met the customer’s need. Along with this, it has become an
integral part of all banks which does not reduces costs and raise customer satisfaction but also
allow agents to in call centre to focus on different value addition. However, it has been critically
evaluated that this somehow decrease the number of employees in a bank due to over
dependency on chatbots.
Thus, it has been analysed that such Fintech contributed positively to the retail banking
industry and this in turn indirectly help customers service. That is why, it has been identified that
with the help of Fintech banking raise their performance in term of financial performance and
customer service (Anagnostopoulos, 2018). Also, new offers to the prospective customers per
their changing needs has affected the most in which banking industry analysed that there is a
need to comply with the customer changing needs. Along with this, a good relationship is also
developed within customers by raising the interactions. Further, it can be stated that with the help
of this technology, banking company griping the existing data and analytics which enhance the
business with refined operational capabilities. Therefore, it can be reflected that with the
changing era, there is a need to comply with the changes and adopt advance technology in
financial institution because it reshape the entire business and support the same to improve the
overall performance and retain customers as well.
Describing baking firm theories that help in future of retail banking
As per the secondary research, it has been analysed that there is no specific banking
theory because it might affect the whole business performance. Also, banks provide output when
they acquire liabilities by issuing time and demand deposits. That is why, there is hardly two or
three banking firm theories which include fractional reserve theory which states that only

banking system as a whole create money whereas each individual bank is a financial
intermediary that gather deposit and lending the same. However, it has been critically argued by
Carnell and et.al., (2021) that amount of deposits always exceed the amount of reserves and it is
obvious that such bank cannot pay all their depositors on demand and this in turn cause
insolvent. Also, the theory also reflected the threat possesses by challenger banks in which
cybercrime is considered one of the biggest threat because it has been identified that most of the
bankers are dependent upon the advance technology and that is why, it become very difficult to
minimize the cybercrimes.
In addition to this, it can be stated that with this issue, company are complying with
financial technology and sometimes customers have to face issues like cybercrime where all the
personal information is leaked. Thus, it become a challenge for the bankers and there is a need to
overcome such issue, as it lead to affect the brand image of a bank as well. Apart from this, the
theory also stated that banking system assist to create money and it definitely requires use of
advance technology (Haralayya, 2021). That is why, it can be stated that there is a need to sort
out the problem by investing upon different key aspects so that it generates a better outcome and
provide best customer service as well. It has been identified that due to change in the economic
performance of a country, there is a direct impact over bank’s performance in term of financial
liabilities and interest rate. Thus, it has been evaluated that the theory is contributed to increase
in the velocity of money so that it assists to grow money and reduce the chances of any negative
impact cause due to threats.
In addition to this, the banking firm theory i.e. credit creation theory stated that banks are
focused upon expansion of deposits and this is possible when company mainly develop multiple
of their cash reserve due to demand deposit serve as a principal medium of exchange. This is
somehow related to the threat of financial regulation. In banks, it is stated that due to fluctuation
in financial regulation, market can be failed and promotes macroeconomics stability which
mitigates the effect of financial failures on a real economy. Thus, it can be stated that bankers
faces a challenge of financial regulation because each country have their own regulation and it is
not easy to comply with these (Isukul and Tantua, 2021). However, on the critically note that it
has been identified that too much regulation always lead to affect innovation and this somehow

affect customer services. So, there is a need to develop effective ways which in turn assists to
improve the overall business performance and generate better outcomes.
Moreover, it has been identified that Fintech also shape the future of banking industry in
which company is liable to facilitate 24 * 7 customer service so that effective customer service
can be provided. Along with this, a robust solution to the consumer is also provided that solve
the issues immediately and this in turn somehow manage all the important operational
capabilities so that bank can provide effective services to their customers. Therefore, it can be
reflected that with an emerging new banking model, company is able to easy access to financial
services in order to improve business performance and lead a better outcome (Cho and Chen,
2021). Overall, it reflected that due to changing in customer service facility, bank generate
effective results which helps to improve overall customer service and minimize the threat as
well.
It can be stated that there are more other threats possesses by the bankers also indicated
that there is a need to reduce the negative impact. The threat include data which has been
manipulated and this might hacked the information of customers which can be used in negative
manner. The threat is now increases after implementing advance technology and this in turn
causes adverse impact over the business performance as well. Also, due to altered data which is
not necessarily look any different than unaltered data causes adverse impact over the business.
This in turn causes direct impact over the business and lead to affect the customer service in
negative manner. This in turn somehow related to Klein Monti model which also stated that
banks are considered as a profit –maximizing firm which mainly offer services to agents and if
there is any issues raised it directly affect the customer base and cause negative impact over the
business performance. That is why, banking sector and banks operated in different countries
need to ensure that the services must comply with the effective laws and regulation so that it do
not affect the overall performance as well as customer base of a bank.
In addition to this, Chen and Sivakumar (2021) explained in their study with the
evolution of advance technology, banking sector faces the biggest issue pertaining to cybercrime
and it is also estimated that in 2019, criminals made around 4 trillion dollar from fraudulent
activity at global level whereas 54% of such activity are recorded in UK (The biggest threat to
banks, 2021). This in turn shows that an accelerated adoption as well as use of digital technology

has creates a massive impact over the banks and it also contributed to scams as well. The highest
fraudulent identified in a mobile transaction where banks are mainly faces issue and that is why,
it somehow decreases the customer base because each transaction details is recorded by the
hackers and this in turn causes negative impact upon the company’s customer base. It has been
also identified that with the changing era, most of the banking sector comply with range of
options and this in turn affected the overall working environment because financial technology is
somehow affected the customer base and that is why, there is a need to reduce the negative
impact because it might affect the customer base as well as sales of a business in negative
manner.
Overall, it can be reflected that there is a need to opt financial technology within banking
industry because it helps to improve the customer service and this in turn causes positive impact
over the business performance. As almost each bank offers mobile application which assists to
provide quick transaction to customers so that they generate a better outcome (Arsic, 2021).
However, each technique has their own cons which somehow affect the business performance
and customer base. That is why, there is a need to solve the issues so that the chances of negative
impact decreases and companies improved their customer service as well. Also, banks comply
with banking theories and this in turn cause positive impact and run a business at positive
manner. Thus, it can be reflected that with the changing environment, most of the banks operated
in financial institution might affected and delay to provide effective customer service to their
users. This assist to generate a better outcome and enhance the customer base as well.
CONCLUSION
By summing up above report it has been concluded that advance technology plays an
important role in the retail banking institutions so that it cause direct impact over the business
performance. There are lists of financial technology used by the banking sector which in turn
causes positive impact such as customer chatbots, e-wallets, mobile banking etc. These
technologies contribute their best for the business performance and also meet the customer need
as well. However, with the help of different banking firm theories it has been concluded that in a
small fluctuation within a banking, it cause a direct impact over customer service because it
increases interest rates and this in turn decreases the customer spending as well. Overall, there

are many threats pertaining to theories which makes bankers to develop effective ways to
minimize the same.

REFERENCES
Books and Journals
Anagnostopoulos, I., 2018. Fintech and regtech: Impact on regulators and banks. Journal of
Economics and Business. 100. pp.7-25.
Arsic, V. B., 2021. Challenges of Financial Risk Management: AI Applications. Management:
Journal of Sustainable Business and Management Solutions in Emerging Economies.
Carnell, R. S. and et.al., 2021. The law of financial institutions. Lippincott Williams & Wilkins.
Chen, Y. and Sivakumar, V., 2021. Invesitigation of finance industry on risk awareness model
and digital economic growth. Annals of Operations Research, pp.1-22.
Cho, T. Y. and Chen, Y.S., 2021. The impact of financial technology on China’s banking
industry: An application of the metafrontier cost Malmquist productivity index. The North
American Journal of Economics and Finance. 57. p.101414.
Coetzee, J., 2018. Strategic implications of Fintech on South African retail banks. South African
Journal of Economic and Management Sciences. 21(1). pp.1-11.
Haralayya, B., 2021. Core Banking Technology and Its Top 6 Implementation
Challenges. Journal of Advanced Research in Operational and Marketing
Management. 4(1). pp.25-27.
Isukul, A. and Tantua, B., 2021. Financial Inclusion in Developing Countries: Applying
Financial Technology as a Panacea. South Asian Journal of Social Studies and Economics,
pp.42-60.
Knezevic, D., 2018. Impact of blockchain technology platform in changing the financial sector
and other industries. Montenegrin Journal of Economics. 14(1). pp.109-120.
Li, Y., Spigt, R. and Swinkels, L., 2017. The impact of FinTech start-ups on incumbent retail
banks’ share prices. Financial Innovation. 3(1). pp.1-16.
Palmié, M. and et.al., 2020. The evolution of the financial technology ecosystem: An
introduction and agenda for future research on disruptive innovations in
ecosystems. Technological Forecasting and Social Change. 151. p.119779.
Phan, D. H. B. and et.al., 2020. Do financial technology firms influence bank
performance?. Pacific-Basin finance journal. 62. p.101210.
Online
What is Fintech and how it has impacted banking? 2021. [Online]. Available through: <
https://www.digipay.guru/blog/the-impact-of-fintech-on-banks-and-financial-services/>.
The biggest threat to banks. 2021. [Online]. Available through: <
https://www.acuant.com/blog/the-biggest-threats-to-banks/>.