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, technology companies based on technological innovation at the centre 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. Its considered that 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.
Regulation of fintechs offering financial services
Traditional financial service providers can usually be categorised as banks, insurers or asset managers, and are supervised accordingly. Some financial technologies companies also include these categories and offer banking, insurance or asset management services. They are then subjected to the appropriate regulations and supervision.
This also applies to fintech banks. A financial technology company with a banking license is a bank and, like any other credit institution, is regulated by law together with the respective national authorities, is responsible for its supervision.
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 specialised 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.
Are fintech banks safe with so much technical effort?
All banks, traditional banks and fintech, are exposed to different types of risks. In principle, new technologies could improve the efficiency and resilience of new and existing banking infrastructures. They could also accentuate certain existing risks. Banks are responsible for the implementation of appropriate risk management processes, regardless of their business model, to manage the risks they face.