How Fintech Is Reshaping the Financial Service Industry

There’s not a single industry that hasn’t been dramatically affected by technological advances over the past decade.

Our evolving digital landscape has revolutionized how we do business, how we communicate, and how we interact with the world. 

As they say, money makes the world go around, and at the core of it all are banking and finance. Let’s look at how fintech companies are reshaping the financial services industry in 2023.

What is Fintech?

Financial technology, or fintech, refers to new technology that automates and improves the delivery of financial services.

It uses software and algorithms on computers and smartphones to help consumers and business owners better manage their financial operations.

The fintech industry has grown significantly and governments will have to consider drafting new regulations and legislation to govern the industry.

With new business models based on the use of big data, fintech has the opportunity to disrupt the financial industry – including banks – in a way we’ve never seen before. 

With cybersecurity being a worrying challenge in the world of information technology, one of the main market drivers for fintech is its ability to strengthen the security of financial data. 

The rapid growth in the fintech landscape has caused leading banks to be more tech-enabled and this has led to features like mobile banking now being the standard. But tech-driven changes are not reserved only for the banking sector; the entire financial services industry has seen significant changes and this includes currency exchanges, lenders, and stock services.

If you are looking at fintech companies to invest in, some companies such as Robinhood, a stock trading app based in San Francisco, have some experts expecting that the company could be worth as much as $40 billion.

Innovations in the Financial Services Industry

Fintech is reshaping the financial service industry as we know it. If you’re in doubt, consider these compelling tech-driven innovations in banking and finance.

Improved Financial Literacy

Finances have historically been a taboo subject that people avoid discussing. Unfortunately, this set up generations for failure.

Pair a lack of education with some of the worst financial crises of the century taking place during the formative years, and the next generation is growing up with an evolved mindset around money.

The millennial generation has severe trust issues in traditional bank systems, largely from growing up during the 2008 housing market collapse. Meanwhile, growing up during the social media revolution has increased conversation and transparency around finances and banking.

This has led many millennials to take ownership of their financial literacy and learn more using technology rather than financial advisors and banks.

With the help of user-friendly interfaces and intuitive tools provided by fintech software companies, individuals can gain a deeper understanding of their finances and make informed decisions about their money management strategies without having to rely on expensive financial advisors or banks.

Whether you’re trying to find the most affordable way to raise your credit score, creating an emergency fund, or saving for retirement, Fintech has made it possible to do so with minimal professional intervention.

Shift to Digital Banks

Over the past decade, as mobile internet became more prevalent, many new, digital-only banks entered the financial landscape.

As the digital banks have less overhead, they can offer better solutions for spenders and savers. For example, customers can open as many accounts as they like rather than paying exorbitant fees for having numerous savings accounts (a practice in financial literacy and empowered saving lessons). 

Contactless and International Payments

In the early 2000s, if you wanted to send money to someone, sending a check or money order was still the predominant method.

If you wanted to send money overseas, it was impossible to do so without a trip to the bank and extensive exchange fees. 

That’s all changed.

As remote work becomes more predominant, this option creates ample opportunity for businesses to create global teams without incurring relocation or satellite office costs.

This type of Fintech goes hand-in-hand (socially distanced, of course) with the need for contactless payment options such as Plixpay.

Many small businesses were forced to shift to delivery and curbside pickup during the height of the global pandemic, creating the enhanced need for Fintech solutions like the Square payment processing tool.

With many businesses hesitant to take cash, these tools became a must for prioritizing safety. Without these Fintech options available, more businesses would have gone under during the early days of the pandemic, creating even more stress on the already fragile economy.

Shifting Priorities in Traditional Banking

The combination of distrust in banks with the shift toward a digital ecosystem has forced traditional banks to re-evaluate their priorities.

Many brick-and-mortar banks are reallocating funds to hire a digital transformation consultant, who will help improve online and mobile banking experiences.

The pandemic was the writing on the wall for many traditional banks, as they quickly discovered they weren’t as invincible as they once thought.

Many major banking institutions shut down branches around the globe to reallocate funds to digital transformation efforts.

Crowdsourcing and Peer Lending

Another exciting innovation under the Fintech umbrella is the rise of crowdsourcing and peer lending applications.

General fundraising apps like GoFundMe and Kickstarter allow people in need of financial support to forgo traditional loans and borrowing options by reaching out to peers via social networking.

These apps reduce the need for loans, which subsequently limits traditional financers from securing interest.

The development of these apps isn’t expected to fall by the wayside any time soon. Nuanced crowdsourcing apps like Mend Together let cancer patients participate in team building activities with the help of gift and cash registries to secure support from their community.

Programs like Airbnb and Uber also fall under the crowdsourcing umbrella and tie into the overall Fintech revolution in taking money from banks.

Incorporating Digital Currencies

Cryptocurrencies have become a hot topic in recent years. While many people consider these currencies a passing fad, traditional banks have had to pivot to account for them. Investors can even use a Bitcoin IRA to save for retirement.

What does this mean for the financial services industry?

The biggest challenge for traditional banks is that cryptocurrencies were designed to be independent of the world currency market.

The idea behind their creation was in response to the 2008 housing market crisis, limiting the banks’ control over this form of currency. At this point, it’s uncertain whether banks can adapt to account for it.

Increased Cybersecurity Needs

As Fintech becomes more dominant and banks seek ways to integrate with existing solutions, there’s an increased need for cybersecurity software in response to the interconnectivity. As mobile transactions increase, so too do incidents of fraud, extortion, and denial of service attacks.

These attacks can bankrupt businesses, create banking liabilities, and severely disrupt financial services.

Financial service providers from all walks of life will need to practice constant vigilance to predict and protect when it comes to cybersecurity.

Final Thoughts

The fact that Fintech is altering the financial service industry is undeniable; it’s created both direct and indirect impacts that have transformed how we handle money.

Only time will tell whether traditional banks can withstand the onslaught and how our connectivity vulnerabilities will impact our financial futures.