Advances in technology in finance are not new. Digital innovation has brought major improvements in system connectivity, in computing power and costs, and in newly created and usable data.
These advancements have reduced transaction costs and given rise to new business models and new entrants. As technology has increased the exchange of information and reduced transaction costs, the production of financial services can be separated. Dedicated players have financial services that are not bundled, allowing consumers to find and assemble their preferred product range.
However, the power of classic economics remains relevant even in the age of digital production. Economies of scale and network effects are present in many aspects of the production of financial services, including customer acquisition, funding, data and capital. Despite the advancements in technology, consumer search and assembly costs remain significant. These strengths drive re-bundling, and provide benefits to large multi-product providers, including big tech companies that expand into financial services from adjacent markets.
FinTech, in the wider context of financial innovation, disrupts the financial services industry in all aspects. However, its ability to thrive, particularly across borders, faces many challenges.
Financial innovation presents significant opportunities that outweigh their impact on financial services firms; All areas of the economy can benefit. This includes changes in the offerings of banks, insurance companies, investment funds, and other financial services firms, as well as modifications to internal structures and processes, managerial practices, new ways of interacting with customers and distribution channels.
It is the process of developing new financial products and services, new means to communicate with customers, and new ways of working. The process of financial innovation can bring significant benefits to our wider society. In this context, FinTech has emerged and is growing as a cornerstone of financial innovation.
FinTech is a general term used to describe innovative technology-based financial services that can result in new applications, processes, or products, with a material impact on the institutions and provision of financial services.
FinTech isn’t just the realm of start-ups; it is also forcing larger, existing financial services businesses to be more competitive and innovate if they are to survive.
FinTech is creating new, customer-centric ways to access and deliver financial services, from easy ways to make payments, to investing money with robot-advice and creating personalized budgets with the help of apps.
FinTech bring a start-up mentality to conventional companies while also enhancing competition, customer focus and collaboration. This trend brings tangible benefits for customers in the form of more competitive pricing, as well as more innovative and convenient services for managing their finances.
The regulatory environment has encouraged increased competition through the regulation of open banking. This regulation requires banks to allow their customers to share their financial information with other authorized providers, such as budgeting applications or other banks. The regulatory regime related to open banking is shaping the future of FinTech by establishing banking as a platform and market banking.