The Advantages and Challenges of Fintech in the Banking Sector

This report provides a comprehensive overview of the impact of Fintech on the banking sector. It highlights the advantages of Fintech, such as alternative credit scoring, alternative insurance underwriting, and improved transaction delivery, while also addressing the challenges banks face in adopti...Read More

Running head: BANKING AND FINTECH
BANKING AND FINTECH
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EXECUTIVE SUMMARY:
This report provides complete insight about the advantages of the fintech in the financial
institutions. The challenges that are faced by the bank due to the inability to adopt the financial
technology in the system are also being explained in this report. This report also speaks about the
advantages that bank enjoy if they accept the financial technology in their operational system.

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Table of Contents
INTRODUCTION:..............................................................................................................3
WHAT IS FINTECH?.........................................................................................................3
BUSINESS MODEL OF FINTECH:..................................................................................4
 Alternative Credit Score.........................................................................................4
 Alternative Insurance Underwriting:.....................................................................4
 Transaction Delivery:.............................................................................................5
HOW CAN BANK ADOPT CHANGE:.............................................................................5
 Technology:...........................................................................................................5
 Customers:.............................................................................................................6
CONCLUSION:..................................................................................................................6
REFERENCE:.....................................................................................................................7

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INTRODUCTION:
The impact of technology and digitalization is one of the notable things in the financial
sector. The introduction of technology and digitalization in the finance world led to the rise in
the new age technology known as fintech. In order to change the interface between the financial
service provider and the financial customer, fintech is being used. This led to the rise in the
discordant relationship between the bank and fintech. In spite of this discordant relationship and
high rate of market disruptions both the parties are working together in the same market. Though
they both are working together in the same industry, but the relationship status between the two
remain complicated, which making the whole financial industry an antiquated system.
WHAT IS FINTECH?
Financial technology or fintech is the new technology that seeks to improve the financial
services in the industry. The use of fintech can also be identified in the companies or business
operations. Fintech assists the management of the company to govern the financial operations
and processes of the company. The development of the crypto currencies and the use of crypto-
currencies all comes under fintech (Schueffel, 2016). The introduction of the internet banking
and smartphone revolution actually comes under the purview of fintech. The advantages of
fintech are immense. It not only improves the financial services, but it also assist to raise the
money from the market for a business start-up.
The origin of the fintech was first seen in the banking industry. It was first implemented
by the banks in their back office through computer technology (Buchak et al., 2018). Since its
inception the fintech has developed by considerable percentage. Fintech now oversee number of
financial activities like money transfer, depositing through smartphones, applying for the credit,

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managing the investments and many more. As per the survey made by EY at least one-third of
total population of the world uses more than one fintech services. These rates of customers are
on increasing trend and expected to take over the finance world within a decade.
BUSINESS MODEL OF FINTECH:
The most innovative business models that are used in the fintech ecosystem are
threatening to wipe out the big banking companies from the world. Some of the business model
that has the ability to wipe out other authentic financial institutions is as follows:
 Alternative Credit Score
Due to the out-dated screening process and credit scoring criteria many
individuals who are self-employed did not get any kinds of loans from the bank. In spite
of having a steady source of income the banks are reluctant to not sanction loan to these
independent individuals. Nova Credit which is a new fintech company developed the
credit scoring system (Navaretti et al., 2018). This company has brought new rules like
social signals and percentile scoring are some of the few criteria that are developed by
this company. This company basically consider these qualitative factors, which are
coupled with intelligent and self-learning algorithm that lead to better lending decisions
over time.
 Alternative Insurance Underwriting:
The generalize system to calculate the premiums for the individuals can be
considered as faulty. The system enable the underwriter to determine the health condition
based on the weight, height, smoking habits, being alcoholic and the series of other
chronic disease. However, it is often seen that the person who might be a smoker is much

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fitter in comparison to the person who is non-smoker (Anagnostopoulos 2018). Thus, this
premium system is not quantifiable. Using the alternative credit scoring the redefining of
the underwriting system of premium can be done, which will ultimately eradicate the
flaws that are present in the system. The way of providing the alternative payment
options or co-pays options will eradicate such faculties from the system.
 Transaction Delivery:
The importance of data in this modern business environment is immense. The
management of the data was considered as one of the toughest jobs before the
introduction of fintech in the financial industry (Arner, Barberis & Buckley, 2015).
Fintech start-ups are creating new free applications that actually speeding up the process
of data management. This process assists the companies to cross pollinate the data with
the respective users. This type of application is used to resell the third party financial
products. This model is known as commission-based model.

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HOW CAN BANK ADOPT CHANGE:
Banks who are at the epitome of the financial industry are facing tough competition from
fintech. In order to mitigate such emerging challenges banks around the world needs to
reconsider their internal operational system as well as external operational system. The changes
that may assist the bank to gain their supremacy in the finance industry are mentioned below:
 Technology:
The technological advancements will not only allow the bank to complete their
internal complex operations within short span of time, but it also allows them complete
the operation virtually (Arner, Barberis & Buckley, 2015). For example, neo banks of the
United Kingdom changed their internal infrastructure and transferred into technological

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infrastructure. This change enables them to handle more than 1000 customers daily
without actually facing any live customers. The adoption of QR-based B2B payments by
DBS bank is also one of the technological advancements that allowed the bank to satisfy
more customers residing in Singapore.
 Customers:
The introduction of the new technology in the financial industry will assist the
banks to remain transparent. The introduction of the technology also helps the bank to
gain more customers as they can provide many free services to the customers. The level
of customer service will also become more efficient and more proactive. After the
inclusion of the new technology in the finance industry, the expectations from the
customers also increased by considerable means (Nicoletti, Nicoletti & Weis, 2017).
CONCLUSION:
As per the above discussion it can be concluded that the importance of the fintech in the
financial industry has increased by considerable means. Though there are some security issues,
but the advantages it has to offer to the industry is immense. The improvement that it can bring

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in the banking industry will not only help them to satisfy the customers, but it will also help them
to reduce the cost. The establishment of the fintech system in the operation of the bank is less
costly than maintaining a live branch. Thus, it can be state that financial technology is the future
of the financial industry.

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REFERENCE:
Anagnostopoulos, I. (2018). Fintech and regtech: Impact on regulators and banks. Journal of
Economics and Business, 100, 7-25.
Arner, D. W., Barberis, J., & Buckley, R. P. (2015). The evolution of Fintech: A new post-crisis
paradigm. Geo. J. Int'l L., 47, 1271.
Arner, D. W., Barberis, J., & Buckley, R. P. (2015). The evolution of Fintech: A new post-crisis
paradigm. Geo. J. Int'l L., 47, 1271.
Buchak, G., Matvos, G., Piskorski, T., & Seru, A. (2018). Fintech, regulatory arbitrage, and the
rise of shadow banks. Journal of Financial Economics, 130(3), 453-483.
Navaretti, G. B., Calzolari, G., Mansilla-Fernandez, J. M., & Pozzolo, A. F. (2018). Fintech and
Banking. Friends or Foes?. Friends or Foes.
Nicoletti, B., Nicoletti, & Weis. (2017). Future of FinTech. Basingstoke, UK: Palgrave
Macmillan.
Schueffel, P. (2016). Taming the beast: a scientific definition of fintech. Journal of Innovation
Management, 4(4), 32-54.

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