FinTech and the Disruption of the Financial Industry

Introduction

Currently, it is impossible to think of a world without the internet and mobile devices. These have become core elements of our lifestyle, and they have brought with them a high degree of disruption in virtually every area of business, with no exception to the financial services sector. This digital revolution is transforming how customers access financial services and products. The financial sector may have experienced some degree of change in the past; however, the constant penetration of technology-driven applications in almost all segments of financial services is something new. The phenomenon that has been accelerating the pace of change and reshaping the financial industry is known as FinTech.

What Is FinTech?

FinTech refers to the use of technology across all financial services functions — for example, replacing paper-based processes with applications and software. In the past, FinTech was mostly used in back-office functions via software aimed at assisting bank personnel to handle accounts, manage customer databases, and execute transactions. However, FinTech has now transformed how many banks operate. Technology is no longer relegated to the back-office; it has taken center stage. FinTech is mainly about innovation, transformation, and disruption, and it will undoubtedly impact and shape how financial institutions across the globe operate. FinTech drives the disruption taking place in financial services, reshaping the way consumers and companies engage by changing how, when, and where financial services and products are provided (Manoj, John, Haskell, Steve, & Dean, 2016). Thanks to FinTech, every digital transaction — from foreign currency exchange and online shopping to money transfers and stock investments — is possible at customers' fingertips. FinTech places technology at the heart of financial services, which fundamentally changes how companies interact with their customers. The proliferation of FinTech has resulted in a number of positive impacts for society, including reductions in prices paid by customers, increased competition, and wider access to financial services among the traditionally underserved.

FinTech sits at the intersection of financial services and technology sectors, where technology-focused startups and new market entrants innovate on the services and products currently offered by the traditional financial services industry (Lu, 2017). For this reason, FinTech has been gaining momentum and causing disruption to the traditional value chain of financial services. The financial services sector is continuously fueled by FinTech. It is no longer a secret that customers are doing more business with non-traditional players, and this is creating uncertainty for the financial industry. Existing incumbents have been forced to react, attempting to work with FinTech in order to leverage the ecosystem that has been created. This means they need to turn innovation into an advantage and eliminate concerns about their businesses being at risk. It should be understood that the accelerating pace of technological change is both the most creative and the most destructive force in financial services ecosystems today.

The main drivers for FinTech have been mobility and the internet. With the increasing penetration of smartphones, customers have an easier way to interact with their respective banks and get real-time views of their bank accounts. As mobile applications grew in sophistication, so did customer needs and demands for more intuitive banking services. Digital transformation in the banking industry, coupled with mobility, has managed to transform the very nature of banking. Customers no longer have to endure long queues and waiting times in bank branches in order to deposit money, request checkbooks, or conduct trades — they can perform all of these functions directly from their mobile phones.

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