Digital banking: How fintech is reshaping traditional banking services
Over the years, the banking sector has evolved with technological advancements, which have reorganized and changed the future of the financial world and banking as we know it. The emergence of Financial Technology, or Fintech, which combines finance with technology, has catalyzed this transformation, completely reshaping traditional banking services and strategies for investing. This change, called digital banking, has revolutionized how businesses and individuals manage their finances. Before the effect of Fintech on Traditional banking services can be discussed, digital banking as a concept must be explained.
What is digital banking?
Digital banking is the process of conducting financial transactions through the Internet. It involves the online provision of all the products and services that a traditional bank typically provides. Before the advent of Fintech, all these services were only available at a physical bank branch. However, with the rise of Fintech, the uninterrupted availability of these services without the customer being present at the bank branch has now been made possible. The effect of Fintech on traditional banking is very prominent, and this article explores how it is reshaping the banking sector. The rise of Fintech in the financial world has been a game changer, challenging traditional banking in a myriad of ways.
What is fintech?
Fintech or financial technology is the use of technology or software to provide financial services and products to consumers in a more accessible and efficient way, which could be in the form of banking, insurance, or investing. It involves utilizing software and algorithms to manage the financial operations of businesses, companies, and individuals.
The rise of Fintech has brought about innovation to the banking sector, and through digital banking, it has emerged as a worthy competitor challenging traditional banking services. The ways Fintech has reshaped traditional banking include:
- Digital transformation of financial transactions: The banking experience (or at least most customer needs) is now online. Traditional banking services are changing radically as many financial institutions adopt technology to ensure smoother, faster, and easier financial operations.
- Financial inclusion: Fintech enhances financial inclusion since it can reach a larger audience, such as low-income individuals and those living in rural areas who lack access to traditional banking services. The introduction of digital wallets, mobile banking, and the like allows individuals in remote areas to access financial services, improving the economy.
- Alternative lending: Fintech services have made the process of lending and borrowing seamless and more accessible. These services include Peer-to-Peer lending and other credit models, which allow individuals and small businesses to get loans more quickly than from traditional banks.
- Personal finance: Individuals can now monitor their finances and have greater control over them with the help of easy-to-use finance management tools such as budgeting apps and automated financial advisors such as robo-advisor.
- Efficiency and cost-effectiveness: Fintech has allowed traditional banks to minimize errors and reduce manual processes and operational costs, allowing them to distribute resources efficiently and increase profitability and productivity.
Digital banking through Fintech has transformed traditional banking, improving overall customer experience and increasing profitability and sustainability; however, it is not without its risks to the financial institutions as Fintech startups and tech giants are capturing market shares, thereby mounting pressure on traditional banks and increasing competition, causing them to adapt and innovate. Digitalization of banking also poses the threat of cyber threats, hacking, and regulatory compliance issues. The financial industry faces opportunities and challenges with the rise of digital banking. Fintech and traditional banking will continue to shape the future in unimaginable ways as evolution continues.
