How Fintech Integration is Disrupting Traditional Banking
If the competition between the traditional banking industry and the new wave of fintech providers was like the classic story of the race between the tortoise and the hare, the slow and steady bank would win despite the young contender’s speed. However, the current version of Aesop’s fable comes with a twist: The tortoise only won because the hare took a nap. In today’s fast-moving world of finance, the fintech hare is very much awake.
Burdened by layers of bureaucracy, heavy regulation, legacy processes and outdated technology, traditional banking is under attack from a new generation of financial services providers. More than 1600 fintech companies now operate in the UK and they come with a superior technology advantage, at the same time carrying little of the baggage that slows down the banks. In every business sector, from retail to commercial to large corporate accounts, fintech integration is disrupting the way consumers and businesses manage and deploy their money.
Read on to learn more about this disruption phenomenon and how the hare has forced the tortoise to retreat inside its shell.
The Growth of Fintech Integration and Embedded Finance
Fintech integration with banks has grown exponentially since the turn of the century. A potent mix of high-speed broadband communications, cheaper, more powerful data storage, the invention of the smartphone, and large swathes of venture capital cash have given opportunity to tech entrepreneurs who saw an old, inefficient financial sector that was ripe for disruption, expansion, and improvement.
Quietly integrating themselves into the global fabric of the financial services industry, the fintechs soon prised apart the banker’s once impregnable shell. Once inside the armour, they rapidly spread to all points of the financial compass to deliver change. Now, integrated fintech solutions such as alternative finance, AI, reg-tech, RPA (Robotic Process Automation), cross-border payments, neo-banking, open insurance, and embedded finance have revolutionised commercial finance to the point where in terms of end-user cost, product performance, and technological advancement, the business banking landscape is unrecognisable from that of only 20 years ago.
What is Actually Being Disrupted?
Account management, lending & financing, domestic and international payments, financial assets and capital markets – there is no sector of financial services that has not been affected by fintech integration.
Four areas of change lead the fintech charge:
Unlike traditional financial institutions, which struggle with ageing legacy systems that inhibit innovation and integration, fintechs start from a blank slate and are organised around new, innovative technology built specifically to improve or automate the delivery of financial services.
Arriving with cutting-edge technology and zero legacy encumbrance has allowed the fintechs to seamlessly integrate singular systems into a web of connectivity that overcomes the slow and expensive ‘silo’ effect of traditional banking solutions. Examples of this interconnected disruption include APIs (Application Programming Interfaces) that integrate existing banking functions into corporate treasury infrastructure to give businesses real-time access to their finances, blockchain and smart contracts payments systems that settle transactions immediately - even across borders, and virtual account management systems that provide clients with a centralised account structure that allows them to maximise their liquidity, improve risk management and operate in the currencies that make most sense for their business. The end result in every case is faster, better, cheaper.
Fintech integration has brought immediacy to financial services. In the stock, bond, commodity and currency markets and in many commercial transactions, speed is often key to capture opportunity. Combining AI, RPA, machine learning and powerful API systems into a seamless data highway enables fintech providers to delete layers of intermediaries and eliminate the banks’ information monopoly over their clients. The outcome is a reduction in financial friction, allowing transactions that once took days to occur in milliseconds and giving businesses the power to limit risk and gain advantage with their commercial and financial decisions.
Breaking the banks’ monopoly on client information has done more than make financial systems faster. It’s also made them more visible. Where traditional banking services once clouded transactions in a thicket of regulations, intermediaries and correspondent banks, fintech’s introduction of blockchain, open banking, APIs, and end-to-end communication has created full transparency. Businesses today can track the trajectory of a transaction from initiation to final delivery in real-time. This creates trust and confidence for both sides of the arrangement and it has been an essential driver in the growth of global commerce.
Lastly, fintech integration which has used technological advances to make business finance faster, more secure, and less opaque, has also lowered costs to generate increased business efficiency. Intelligent automation, such as AI, RPA and machine learning systems now control billions of transactions and account demands every single day, where once they would once have required manual input. In turn, these systems have eliminated many common human errors, driven down internal banking costs, reduced the need for manual intervention and given financial services providers a greater ability to improve customer experience. Businesses can benefit from lower fees, lower exchange rates, lower interest rates, and a wider choice of financial products to choose from.
The Race Speeds Up and Goes On
As traditional banking plays catch up to the fintech sector, the disruptors are rapidly moving ahead. The near future will see increased use of blockchain technology to ensure total security, real-time cross-border payments will make paying a customer on the other side of the world as fast as buying a latte in your local coffee shop, and smart contracts will reduce the need for many financial and industrial regulators and even some insurances.
Even as we watch, fintech integration 1.0 is blending into fintech integration 2.0 and the potential for disruption and improvement in financial services appears inevitable and unlimited. Or, to put it in more colourful terms - the tortoise is hibernating and the hare has got his skates on.
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