Is FinTech the same as digital banking?
Fintech is not only improving the financial consumer experience, but is changing the way people pay, transfer money, lend, borrow, and invest. Digital banking is traditional banking dressed up in a digital wrapper. They are not the same. But let's get one thing straight: digital banking isn't bad.
In conclusion, digital banking and FinTech represent two distinct, yet interconnected, facets of the financial industry. Digital banking focuses on providing traditional banking services through digital channels, while FinTech encompasses a broader spectrum of financial technology innovation.
Fintech companies are often more innovative, faster, and cost-effective, while traditional banks are more established and provide a wider range of financial services. Ultimately, the choice between fintech and traditional banking depends on the needs and priorities of individual businesses.
What is digital finance? Digital finance, often referred to as fintech, is the application of digital technologies to financial activities. Consumers and businesses are increasingly using digital financial services. The COVID-19 pandemic further amplified this trend.
Fintech refers to digital technologies that have the potential to transform the provision of financial services spurring the development of new – or modify existing – business models, applications, processes, and products.
The word “fintech” is simply a combination of the words “financial” and “technology”. It describes the use of technology to deliver financial services and products to consumers. This could be in the areas of banking, insurance, investing – anything that relates to finance.
They make it not only possible but also easy to move money between accounts, people, countries, and organizations. There's no typical fintech company: fintechs include start-ups, growth companies, banks, nonbank financial institutions, and even cross-sector firms.
Banks provide fintechs with backend infrastructure, knowledge, compliance, and regulatory controls. Fintechs help banks access new markets, enhance and accelerate the rollout of digital offerings, and deliver a better, more customer-friendly overall experience.
FinTech (Financial Technology) has transformed the financial industry by leveraging technology to provide innovative financial services. While FinTech has disrupted traditional banking in many ways, it's unlikely to completely replace banks entirely.
Substitution between FinTech and banks is economically small, implying that FinTech mostly expands, rather than redistributes, the supply of financial services.
What qualifies as FinTech?
FinTech (financial technology) is a catch-all term referring to software, mobile applications, and other technologies created to improve and automate traditional forms of finance for businesses and consumers alike.
Fintech has the potential to bring financial solutions to underserved & unbanked populations, fostering financial inclusion by providing access to banking, payments, & investment opportunities to individuals & businesses who were previously excluded from the traditional financial system.
Examples of fintech usage are peer-to-peer payments, online ecommerce purchases, donating to funding platforms, and online banking, to name a few.
As a leading global digital payment leader for 20 years, PayPal (NASDAQ:PYPL) stands out among the rest. PYPL stock has gained international recognition as a top fintech stock to own for the long term.
Fintech companies can help banks improve their digital platforms. They have a lot of experience in developing and managing digital platforms, and they can share this experience with traditional banks. This can help banks offer a more convenient and seamless customer experience.
| Rankings | Name | Continent |
|---|---|---|
| 1 | Visa | North America |
| 2 | Mastercard | North America |
| 3 | Intuit | North America |
| 4 | Shopify | North America |
“The committee notes that fintech companies, apps and platforms such as PhonePe and Google Pay owned by foreign entities dominate the Indian fintech sector,” the house panel said in a report tabled in Parliament.
The impact of digital transformation in the FinTech industry has been immense. Digital technologies have enabled FinTech companies to improve their operations, services, and customer experience, resulting in significant growth and expansion.
Fintechs weaken the relationships between financial institutions and their customers/members. It is already possible for people to manage their finances with minimal interaction with their banks and credit unions.
Other examples of activities that do not qualify as Fintech include Online DSA and NBFCs lending online. These are mere extensions of their main business and these activities in no way leverage technology significantly. Fintech is a space that is evolving rapidly and generating considerable excitement.
Why does fintech pay so well?
The reason for higher fintech salaries is pretty clear: these cutting-edge firms must not only compete for talent with the traditional finance sector, but also deep-pocketed tech giants such as Google and Microsoft that have no compunctions about paying whatever it takes to secure the talent they need.
Fintechs provided the technology, banks the funding and customers, with each augmenting the potential of the other. Established fintechs with mature and successful offerings look attractive to banks because they are less risky, and banks would otherwise have to spend money and time to build.
Because fintech firms don't rely on legacy processes and technology, they often operate with lower overhead costs. To compete, banks should focus on cost reduction, optimizing operations and streamlining processes through modernizing and digitizing their tech stack.
Diminished relevance: Fintech companies can disrupt various areas of banking, including payments, lending, wealth management, and more. Banks that do not innovate risk being left behind in multiple segments of the financial industry and becoming less relevant in the eyes of consumers.
Notably, investment in later-stage deals decreased drastically from $37.4 billion in 2022 to $14.1 billion in 2023. Fintech investors grew more cautious amidst global instability, inflation concerns, and doubts about valuations and exit opportunities.
