27 January

What Are Fintech Banks And What Impact Will They Have On Financial Services?

What is Fintech?

Fintech (abbreviation of financial technology) is a generic term for any type of technology. This leads to many new business models, applications, processes, and products. All financial services providers are increasingly dependent on technology, and technology companies based on technological innovation are at the center of their business. They can be particularly active in areas such as new payment systems or automated investment advisory services.

What is a Fintech bank?

Fintech banks follow a specific business model in the broad fintech category. It’s considered that a fintech bank is a “business model in which the production and supply of banking services and transactions are based on innovation”, as indicated in the guide for the evaluation of applications for licenses by credit institutions fintech.

The central role of technology distinguishes a financial technology bank from a traditional bank. However, many conventional companies also use fintech solutions and, in some cases, are linked to, or acquire, fintech companies to improve their ability to innovate.

How are Fintechs affecting Merchants and Businesses?

Fintech banks are revolutionizing the financial services landscape by optimizing processes for merchants in remarkable ways. One of the standout benefits is the reduction in card processing fees, which can be a significant expense for businesses. Fintech banks often offer competitive rates and innovative solutions to streamline payment processing, enabling merchants to accept payments from various sources seamlessly. With advanced technology and efficient payment gateways, transactions become faster and more secure, enhancing the overall customer experience.

Additionally, fintech banks leverage data analytics to provide valuable insights into customer behavior, helping businesses make informed decisions to improve their revenue streams and profitability. This shift towards cost-effective and data-driven payment solutions promises to have a profound and positive impact on the financial services industry as a whole.

Regulation of fintechs offering financial services

Traditional financial service providers typically fall into categories like banks, insurers, or asset managers, and they are regulated accordingly. In a similar vein, many financial technology companies offer services akin to these categories, providing banking, insurance, or asset management services. They are then subject to the appropriate regulatory frameworks and oversight.

Furthermore, it’s common for banks to collaborate with loan brokers who offer services like Assets Management. Through these partnerships, high net worth individuals can engage for Assets Under Management with LDN Private Clients or similar brokers. This may, in turn, lead them to engage with these fintech banks, potentially bringing in additional clients.

For a fintech company to engage in such activities, it is imperative to hold a banking license, much like any other credit institution. Consequently, they will be subject to legal regulations and oversight by the relevant national authorities. This ensures compliance and accountability in their operations.

Are fintech banks safe with so much technical effort?

All banks, traditional banks, and fintech are exposed to different types of risks. New technologies provided by companies like Fortinet could improve the efficiency and resilience of new and existing banking infrastructures against cyberattacks and other threats. Banks are responsible for the implementation of appropriate risk management processes, regardless of their business model, to manage the risks they face.

Impact of Fintechs on traditional Banks

Fintech is demanding and changing the business of conventional financial services. Many fintech companies are new to the market and start-ups. It remains to be considered that these companies will grow and occupy a large part of the financial sector or offer specialized services to large institutions. More and larger banks are investing in business innovation and setting up financial technology units in their organisations. Some of them have financial technology companies or have partnered with financial technology companies to provide specialised services.