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Fin Tech firms-A new challenge to Traditional Banks: A Review

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Abstract

Banks, as we know, have been around for hundreds of years and controlled the market of financial services. But now the functioning of banks have been affected by the rapid advancement in technology. There has been a drastic change in not only making finance more secure but also making it better for its customers. Financial technology or FinTech has developed as a new financial services industry in India. This industry consists of companies that use technology to provide financial services. These companies operate in various sectors like wealth management, insurance, payments sector etc. The different technological interventions that have been introduced to personal and commercial finance by these FinTech companies was facilitated in part due to the expansion in the mobile internet market. The ways the banks used to serve their customers have been affected by these non-banking service providers as the traditional banking methods are not seen as enough to meet the ever increasing expectations of the customers along with earning profits. Nowadays banks are ever-changing beneath the influence of latest technologies and innovative finance market players like these Fin Tech firms. Some of these banks are joining hands with Fintech start-ups to boost their services. Some invest in young firms or produce their own start-up accelerators to support and use these new technologies and derive benefits from this. This study is undertaken to understand the growth of FinTech firms and the challenges faced by traditional banks due to emergence of FinTech firms by analyzing forty two peer reviewed journal articles available in EBSCO and Science Direct.
173 International Journal of Applied Business and Economic Research
Fin Tech firms- A New Challenge to Traditional Banks: A Review
International Journal of Applied Business and Economic Research
ISSN : 0972-7302
available at http: www.serialsjournal.com
© Serials Publications Pvt. Ltd.
Volume 15 Special Issue 2017
Fin Tech firms- A new challenge to Traditional Banks: A Review
Vijith M Nair1 and Dileep G Menon2
1 Student, Dept of Management, Amrita University, Amritapuri Campus, Kollam, Kerala, India, E-mail: nairvijith14@gmail.com
2 Faculty, Dept of Management, Amrita University, Amritapuri Campus, Kollam, Kerala, India, E-mail: dileepgmenon@gmail.com
Abstract:
Banks, as we know, have been around for hundreds of years and controlled the market of financial
services. But now the functioning of banks have been affected by the rapid advancement in technology.
There has been a drastic change in not only making finance more secure but also making it better for its
customers. Financial technology or FinTech has developed as a new financial services industry in India.
This industry consists of companies that use technology to provide financial services. These companies
operate in various sectors like wealth management, insurance, payments sector etc. The different technological
interventions that have been introduced to personal and commercial finance by these FinTech companies
was facilitated in part due to the expansion in the mobile internet market. The ways the banks used to serve
their customers have been affected by these non-banking service providers as the traditional banking
methods are not seen as enough to meet the ever increa sing expectations of the customers along
with earning profits. Nowadays banks are ever-changing beneath the influence of latest technologies
and innovative finance market players like these Fin Tech firms. Some of these banks are joining hands
with Fintech start-ups to boost their services. Some invest in young firms or produce their own start-up
accelerators to support and use these new technologies and derive benefits from this. This study is undertaken
to understand the growth of FinTech firms and the challenges faced by traditional banks due to emergence
of FinTech firms by analyzing forty two peer reviewed journal articles available in EBSCO and Science
Direct.
Keywords:
Banks, FinTech, Non-Banking Service Providers, Disruption, Disintermediation, Investment
I. INTRODUCTION
The development of the area of business that produces financial innovations is connected to the development
of the financial services market. The term innovation springs from Latin word innovare, which means
producing one thing new. It can also be interpreted as an implementation of new technical know-how in
the operations of the companies. In such a market the parties that are functioning, strive to expand their
International Journal of Applied Business and Economic Research 174
Vijith M Nair and Dileep G Menon
product offerings and services that are being provided, in such a way that it adjusts with the quick and
subtle changes in the economy which can happen anytime.
The innovations in the financial sector has been driven by some factors which include:
Ongoing globalization processes
Not interfering much in the financial markets
Increase in the competition
Rapid advancement in technology
Scale economies within the production of financial services has increased, as new possibilities are
created to increase the overall efficiency and increase value through consolidation and adoption of new
technologies [1].
The winds of change are blowing as Financial technology (henceforth referred to as FinTech) have
developed to such an extent that they have the potential to change the way how the payments are made and
who facilitates them. It’s the era of FinTech companies and the traditional banks can no longer ignore this
development. Fintech players which act as these non-banking service providers are causing an obstruction
and removing the intermediaries by targeting the profitable segments of the banking value chain. The ways
the banks used to serve their customers have been affected by these fintech firms as the traditional banking
methods are not seen as enough to meet the ever increasing expectations of the customers along with
earning profits. [2]. In the fintech landscape there are a variety of fintech service providers that specialize
on improvement of certain parts of the standard banking model that is followed throughout the world
with the use of innovative technology. In this model, banks offer a broad portfolio of products in various
sectors like commercial, investment, retail, private and transaction banking, apart from asset and wealth
management. In contrast, fintech players fixate on planning, building, and executing certain components
of the banking value chain in a better, cheaper, and faster way than what is currently on offered at banks.
Using this strategy they are able to carve a position for themselves in a specific niche. Due to the number
of fintech players being so high and also their high rate of innovation, it puts all the products and the
services offered by traditional banks at risk [3]. Nowadays banks are transforming with the advent of
innovative finance market players and development new technologies. To enhance the services that are
being offered to the customers, banks are acquiring fintech startups. The threat to FinTech firms to the
banks is only going to increase further in the future even though the degree to which the disruption has
been caused is different across various banking services. The increased presence of smart devices has been
one of the main driving force behind the wide spread dissemination of FinTech services.
Financial services transactions and banking transactions are now being discharged electronically. Banks
that provide net banking services have a foothold over those offering only traditional banking services
which are offline. Apart from e-commerce, “Internet banking” is an innovation that helps the banks in
achieving competitive advantages like meeting the demand of the consumers, making efficient transactions
reducing the transaction cost, providing better services to customers [4].
Given the usage of smart devices is on the rise along with other payment methods like via debit cards,
credit cards or other smart cards which uses RFID technology to complete transactions, growing in the
B2C segment can be seen as the way forward for the FinTech industry. One only has to look at a 25-year-
175 International Journal of Applied Business and Economic Research
Fin Tech firms- A New Challenge to Traditional Banks: A Review
old desktop computer or early mobile phone to realize the scope of savings that could be gained through
applying today’s level of FinTech functionality [5]. FinTech companies are going to play a major role how
payments are made for goods and services by the consumers as they are relying more on smart devices and
contactless transactions departing from traditional banking transactions that were followed like money or
credit cards. Young, high income consumers are being lured in by Fintech firms. They are viewed as early
adopters of new technologies. Majority of these early adopters are found in large urban areas or metropolitan
cities like Mumbai, Delhi, Bangalore etc. which are also coincidentally major financial centers.
(A) What is FinTech?
FinTech firms are businesses which are mainly based and use technologies that facilitates them in competing,
enabling and/or collaborating with monetary establishments. These start-ups connect with technology
consultants, financial institutions, government agencies, industry consultants, associations and research
institutions in a kind of external partnerships. Through such kind of partnerships, huge unified systems
are produced that comes with all the necessary prowess, the technical know-how, technologies and facilities
of all the units.
As per NASSCOM the Indian FinTech software market is estimated to grow from a current $ 1.2
billion to $ 2.4 billion by 2020. Increase in e-commerce, and smartphone penetration has triggered a
change in the traditional cash-based Indian economy which in turn has responded well to the opportunities
presented by fintech firms. The number of mobile users in India has increased from 5.5 million in 2000 to
nearly 500 million in 2012. Likewise, the mobile internet subscriber base has grown from around 3 million
subscribers in 2000 to reach 150million by early 2007, displaying an average growth of 700% over a 7-year
period [6]. The Indian FinTech sector’s transaction value is forecasted to reach around $ 73 billion in 2020
from an estimated $ 33 billion in 2016 with the growth being at a compounded annual growth rate of 22
per cent for a period of 5 years.
The following are the division of activities in the FinTech area:
Service-orienteddevelopment of technologies related to services which are traditionally provided
by financial institutions, such as fund transfers or card payments, lending and investment, P2P
lending, crowdfunding, or foreign exchange.
Data-oriented solutions and technologies devoted to collecting, processing and analyzing
information. Although banks have not been paying much attention to the big data phenomenon,
recently there are signs that this tendency is changing.
Process-oriented after the financial crisis of 2008, banks all over the world re-defined their
operating models. Nowadays, banks are introducing so-called cost caps and have started working
on increasing efficiency and process automation [7].
FinTech generally comprises two categories, cooperative or disruptive. Cooperative FinTech works
with the existing finance infrastructure and either streamlines it or makes it more user-friendly (e.g. online
banking). Disruptive technologies have reimagined finance altogether and invented new ways of doing
business (e.g. crowdfunding). The industry is also often segmented by the business process it provides (e.g.
deposit accounts, payments, lending, wealth management or investing, insurance, markets, and back office
operations) and the customer segment it serves (e.g. retail banking, insurance, and corporate banking) [8].
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Vijith M Nair and Dileep G Menon
Some of the causes for FinTech emergence is as follows:
1) Technology: Rapid strides have been taken in the development of technology also including increased
mobile access, big data analytics and social networks has contributed towards the emergence of FinTech.
Big data provides great potential for firms in creating new businesses, developing new products and services,
and improving business operations. Use of big data analytics can create benefits, such as cost savings,
better decision making, and higher product and service quality Personalized advertising that is finely tuned
to what shoppers are searching for and news articles identified with their interests are a portion of the
effects which leads to quick payments across various groups [9]. It can be seen that rapid technological
progress has proven insturmental in improving the service offerings that are being offered to the customers
as well as increasing the efficiency and transparency of the traditional processes.
2) Regulation: Regulation is another important Fintech driver. The 2008 financial crisis led to changes
in the competitive and regulatory landscape which was in turn beneficial for these Fintech firms. Banks and
other, established financial services providers, have to adhere with the additional rules, regulations and
capital requirements which are not required to be followed by FinTech companies at present. Many
jurisdictions have addressed the issues regarding peer-to-peer lending and equity cloud-funding by requiring
these financial establishments to fully disclose the risks involved, in turn helping the investors to make well
thought out decisions. [10].
3) Demographics: Another factor that is leading to the growth of FinTech firms is that of favorable
demographics. Young, high income consumers are being lured in by Fintech firms. They are viewed as
early adopters of new technologies. These early adopters form a major chunk of the population throughout
various nations of the world.
(B) Transition from Cash Economy
According to a study conducted by World Bank, they found out that up to 75 percent can be saved by the
governments using the electronic payment programs which will enable them to eliminate the costs associated
with cash based payments like that of handling, transportation and distribution fees and in a way eliminating
the risks also involved being that of theft and fraud. According to report by Kotak Securities it may take
India at least five to ten years to become a significantly cash-less economy even after the several initiatives
that were taken by the government to lower the general populace’s depedance on cash post the high-value
note ban. But given the existing rapid technological advancements, the transition may take less time than
other less-cash economies.
Germany can be taken as an example. The days of the weekly or monthly pay envelope ended in the
late 1950s to early 1960s. This development, marked the change from a cash-based economic system to
electronic payments, which was initiated by innovative companies (not banks) that recognized the benefits
of electronic payments [11].
II. REVIEW OF LITERATURE
Innovations that are made in financial services are responsible for the growth in the economy, which
results in generating gains in the market for the innovators and adopters, in turn enhancing welfare for
society, and prompting progressive adjustments in the structure of the financial institutions and financial
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Fin Tech firms- A New Challenge to Traditional Banks: A Review
market. But the innovations made in financial services can be a double-edged sword – they have an underlying
link with financial crisis and catastrophic events. [12]
The FinTech companies functioning in India is slowly but steadily venturing into every segment of
the financial services ecosystem. While the adoption levels overall can vary, the general trend that can be
seen is that every segment is growing rapidly. Internet penetration in India has increased dramatically over
the past five years and e-commerce is growing thanks to burgeoning growth of mobile and due to the large
and growing digital populace. The FinTech sector can be categorized into 4 sub-sectors. Each and every
sector will be analysed and we will study how in each sector these firms pose a challenge to the traditional
banks.
(A) Payments
Payments have become an integral part of our day to day activities. Each and every day, we engage in some
sort of payments across various situations using various methods. Majority of the transactions that were
carried out for purchases and financial transactions among the public and corporations were in the form
of cash or cheques for the greater part of the early 1900s. In the second half, with the advent of plastic
money such as smart cards, credit cards and debit cards and Automatic Teller Machines, it was made
possible to conduct purchases and withdraw money from the banks at will. E-commerce started acting as
an alternate way by which the financial transactions over the Internet in the 1990’s was conducted, which
resulted in internet payments and internet banks emerging. The focus has shifted to mobile phones and the
avenues it presents as a gadget that facilitates payment. It is predicted that in the coming years, we will have
a cashless society as the reliance on cash will decrease gradually [13]. From a technological perspective
during the past 10 years, e-commerce activities has been linked with crucial reforms and innovations, for
the business models that have been introduced. Some of the recent developments made in the field of e-
payments emphasize upon this point. The usage of payments made on the internet based on debit cards
and credit cards has seen a rapid growth for a number of years, like PayPal has seen, as there proportion of
payments have been increasing over the years [14]. Steps have been taken to develop and increase the
digital payments experiences due to the growth in e-commerce, the consumer expectations for real-time
payments has facilitated a movement towards a post cash economy. Innovations in the retail side include
mobile wallets, P2P mobile payments etc.
The future direction for payments policy in the financial industry was outlined according to the study
conducted by Eiichiro Yanagawa which is as follows:
Basic policy: Having a grasp of the prevailing state of the payments market, basic policy approach
and future direction.
Retail sector. Transformation in the payments services to adapt a more coherent fusion between
the financial and IT sectors.
Wholesale sector: Strategic progress in payment services to aid in the expansion of companies.
Payment infrastructure: Improve to increase user satisfaction and strengthen international standing
of the companies.
System roadmap pertaining to virtual currency. [15]
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Vijith M Nair and Dileep G Menon
Payments is a sector that has become a point for innovations in the digital sector. All are entering the
payment markets from telecom operators to payment service providers, technology startups software
companies etc. Payments sector has become one of the most rapidly developing and competitive sectors,
due to its confluence with mobile technologies. This sector is characterized with a fierce innovation based
rivalry for grabbing market position. Banks everywhere throughout the world are discussing the innovation
drove rivalry as the new ordinary showing that the business has begun to show aggressive dynamics that
are common of cutting edge enterprises ventures [16].
The payments value chain can be subdivided into the following eight sub-processes:
a) Payment initiation
b) Customer authentication
c) Authorization
d) Clearing
e) Settlement
f) Information about the completed transaction
g) Provision of payment equivalent
h) Management of complaints [17]
The exponential growth that can be seen in the smart phone usage across the country has presented
an opportunity that is being taken advantage of by Indian FinTech firms. They are utilizing this opportunity
by developing applications that permit the customers to make payments via mobile. This shifts the reliance
of these customers from traditional banks to such firms for payments.
Mobile payments can be explained as payments that can be made for goods and services, with a
mobile device by utilising wireless and other communication technologies [18]. Although mobile payment
has been on the agenda for considerable length of time, only few mobile handset-based or contactless
card-based payment solutions have reached mass market in Western economies. The market players like
banks, credit card providers, banks, payment providers etc. are looking towards dominating the mobile
payment market. At present due to the increased penetration of Near Field Communication (NFC) on
mobile phones the market expectations have seen an upward rise [19]. Mobile payments was therefore
distinguished from any specific sort of electronic or mobile money as there is a use of mobile devices to
access electronic payment services, and electronic banking. Mobile payments possess characteristics
completely different from previous innovations in the finance area as they also perform as a digital platform.
The barriers of entry become low due to digitalization of the services that are offered, as digital solutions
have economies of scale, and are easily replicable apart from being less expensive. The scalability of such
digital platforms results in escalating the competition between the various payment providers which in turn
makes the task of maintaining and gaining a market advantage in the digital payments area challenging [20].
Mobile wallets is an another innovation from the side of payments. Mobile Wallet has benefitted both
the business owner and customer by satisfying their needs on the same go. The usage of mobile wallet in
today’s era has increase owing to the complexity of money transactions. In India at present the mobile
wallet users stands at about 140-150 million which is about seven times the number of credit cards that is
issued i.e. according to the reports of Reserve Bank of India (RBI), there are about 21 million credit card
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Fin Tech firms- A New Challenge to Traditional Banks: A Review
users in India (till March 2015). There are 4 distinct types of m-wallets like a closed wallet, Semi closed
wallet, open wallet, semi open wallet. The most popular Mobile Wallets are – Paytm, Free recharge, Mobikwik,
M-pesa, Airtel Money, Oxigen Wallet etc. Its development ecosystem is comprised of a variety of powerful
stakeholders, each vying to establish a commercially strong position in the value chain. A digital wallet
allows users to make electronic commercial transactions swiftly and securely. It functions much like a
physical wallet. With some exceptions, most banks and traditional financial institutions have, for example,
are developing mobile wallet solutions that enable customers to access their full portfolio of payment and
personal banking services through their mobile devices. In other words, focus is on their own vertical
market sector and assembled wallet solutions accordingly. [21]
Technology has more and more blurred the industrial divisions, like between the financial services
being offered both online and offiine. As the convergence between finance and technology is advancing at
a quick pace, the standard way by which money used to be deposited and payments used to be made has
changed. Through the use of technology, the opportunities that have arisen has quickly been exploited by
companies within the finance market by offering a number of financial products and providing services
which would have otherwise been provided by the traditional banks [22]. Making payments digital has its
own risks. For example many people enjoy online shopping with their credit cards but due the transactions
issued are created via wireless which opens it to a lot of risks from outside hackers. Credit card fraud
nowadays is serious, which significantly reduces online attraction for some people. [23]
(B) Investments
FinTech companies come in all shapes and sizes, and face a wide variety of issues in the course of their
operations. Experts say about 2016 was the year of FinTech and the disruption it will brought, but the
quantum leaps that many firms seek to create began to evolve many years ago as the use of technology has
grown and spread within financial services. [24]
Investments are another area of finance that has already undergone changes thanks to technology.
Investment management is a highly competitive sector which is marked by high ease of entry and low
capital requirements [25]. The rise of crowd funding as an investment option has been one of the most
noticeable change in how entrepreneur procured capital. Equity crowd funding is the collection of funds
across a wide network of investors and is probably the most disruptive of all of the new FinTech platforms.
One of the initial hurdles usually faced by new entrepreneurs is the identification and sourcing of
capital. Crowdfunding simplifies this method by providing a platform to the entrepreneurs with broader
reach and visibility. Crowd funding can be explained as a technique to raise funds, which helps out businesses
especially the entrepreneurs who are starting out to obtain capital from a large number of individuals from
the general public, the ‘crowd’. However, a notable implication of shifting this fundraising method online
is the increased visibility and traceability of transactions. Most crowdfunding platforms maintain a public
record of all transactions, as well as information concerning contributors’ identities, the amount of the
contributions they have made, and the campaigns they are supporting.
The two main categories of crowdfunding:
Donation crowdfunding
Investing crowdfunding.
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Vijith M Nair and Dileep G Menon
5 business models presently are practiced within 2 broad categories and crowdfunding platforms are
often organized around one of these 5 models. Donation crowdfunding includes donation-based and
reward-based crowdfunding. The Investing crowd funding includes equity-based, lending-based, and royalty-
based crowd funding [26]. Entrepreneurs register their business with a crowd funding website. This website
analyses the business venture of the entrepreneur after which a decision is made as to whether the
entrepreneur should be allowed to raise funds using the website. The crowd funding website publishes
information about the business following a positive outcome in the evaluation process which includes
what the entrepreneur is doing, the investment opportunity it offers to the potential investors and other
details. The investment pitch of the entrepreneur generally includes details about the amount he wants to
raise, the time span within which the requisite amount has to be raised, the reasons for capital requirement
and what all are offered to the investors in return for their investments in the form of rewards..
Investors the supposed crowd funders also sign up in the platform and may afterwards view the
investment opportunities. If they decide upon investing, they will use the platform to pledge any amount
of capital they wish to invest [27]. An enormous opportunity exists if there is a collaboration of established
capital markets players like investment banks with fintech corporations, however the potential is far from
being realized. Fintech can also be used to improve bank services by tracking client satisfaction and creating
a more personalized experience.
Fintech companies come under the category of personal finance which can further be divided into
three segments—insurance, investment and money management. Money management fintech companies
currently give comprehensive details about your income, investments and expenses.
(C) Financing
In recent decades, the information systems literature has seen many studies being conducted contending
that physical distance’s importance has been decreasing, attributing this to a reduction in search costs and
the ability of information technology to ease transactions over larger distances. These trends have driven
an (incomplete) shift toward a so-called flat world [28]. The highly regulated global financial sector is
undergoing irrevocable changes due to the disruptive effect of digital technologies. Given the growing
significance and wide-ranging implications of FinTech, there is a need to explore the strategic development
of a FinTech firm from a lending perspective [29].
FinTech plays a vital role in lending activities too, case in point – unsecured loans that consume a lot
of time when done the traditional way which can otherwise be enabled instantaneously with technology.
One of FinTech’s most visible successes has been the exponential growth of marketplace lenders or peer-
to peer (P2P) lenders. P2P lending also called as crowd lending is the money transaction between unrelated
individuals. The Online P2P model, powered by online platforms, is completely different from the offline
P2P model that was bound to certain groups of individuals. In the later part of this century, personal
computers and the Internet’s wide usage made it possible for lenders to utilize information technology
independently. Further, infused by the rapid development of IT and the increase in the popularity of social
networks, online P2P lending had grown considerably [30]. Crowd lending is a possibility for small, medium
and larger businesses to borrow from individuals and institutions without going through banks, simply and
transparently. It is necessary to distinguish crowdlending from other forms of business crowdfunding. On
the one hand, crowdlending can be distinguished by the form of investment. In crowdlending, the lender
181 International Journal of Applied Business and Economic Research
Fin Tech firms- A New Challenge to Traditional Banks: A Review
invests in specific loan requests (e.g. via Lending Club or Funding Circle). This contrasts to other forms of
crowd financing such as crowd equity (where investors acquires a share of another company) donation or
reward-based crowd financing (which are more concerned with altruistic motives and do not involve a
legal claim to an asset [31].
FinTech lenders obtain the funds required for their lending activities in a number of ways, including
matching borrowers in the marketplace with investors, selling loans that are originated online [32]. The
profits earned by FinTech firms has been from fees charged by lenders on credit rather than from the
difference between the deposit and lending rates.
We can now witness rampant disruptions in highly regulated sectors such as banking and finance,
especially with the development of FinTech, a term that describes disruptive technologies in the financial
services sector. Further, reference [33] has shown that micro-finance is present in some parts of the country
only. Financing through FinTech companies will ensure that the access to micro-finance is spread across
the country.
(D) Financial research and data analysis
FinTech firms use data analytics and along with that conduct research for better delivery of services to the
customers. Some of the areas where these firms use big data analytics are for credit scoring, customer
acquisition, risk management, investment management etc.
Every day, corporations use the information drawn from their customers through business and non-
business activities so as to cross-sell, up-sell and interact customers across a spread of platforms. A key
distinction between the traditional data sharing of filling out a form or completing a government census
and the new world of sharing millions of pieces of data globally via the cloud is that it currently leaves
firms, establishments and customers with larger access to a wealth of knowledge [34].
Risk management can be defined as the identification, assessment, and prioritization of risks afterwards
followed by a coordinated and economical use of those resources with the aim of reducing, monitoring,
and managing the probability and/or impact of unforeseen events or to maximize the realization of
opportunities. The success of risk management hinges on the flexibility to outline a risk appetence that
befittingly reflects the dangers of a firm and then accurately measure the ongoing risks to identify cases
where these risks have exceeded the limits imposed by the risk appetite. Risk management thus depends
heavily on the flexibility to unify disparate types of knowledge into a typical framework. Each risk type
presents typically different issues from the perspective of data. Big Data technologies can be used as cheap
‘data lakes’ to store not only data elements that are required but also others that could possibly be required
in the future. Once in this data lake, the new data element can be easily provisioned for risk analysis [35].
III. SUMMARY OF ANALYSIS
In today’s world a new company can spring up into existence in a matter of weeks. Fintech startups build
quick, move quick and adjust consumer expectations on the types of reviews they should be getting.
Traditional banks, are commonly fraught with stiff processes and monolithic infrastructure, are being
challenged, stunted and in some cases, uprooted [36]. Major global banks are starting to recognise that they
need to do business with fintech companies to help them adapt to a changing business landscape. Banks
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Vijith M Nair and Dileep G Menon
are traditionally quite conservative and hierarchical, and it can be a struggle for them to move quickly to
cope up with the pace of the fintech companies. Strategically also banks cant face the fintech firms head as
the banks legacy systems act as major barrier and hiring top tech talent for banks is not easy [37]. It also
introduces regulatory risk as startups are introduced to financial services rules for the first time. But they
are slowly recognising the benefit of having someone external who looks at just the tech, without the
typically risk-averse, commercially restrictive lens that someone working for a large institution might have
[38]. Banks have the advantage of having access to a large number of customers, clientele and do not have
to incur high costs to raise funding, so it would be mutually beneficial for both the traditional banks and
fintech firms to enter into partnerships with each others. Some experts also agree upon the fact that by
integrating these fintech firms into existing banks, traditional banks would be able to acquire more customers
or provide better service to the current customers and serve more profitably [39]. Fintech could also be
used to improve bank services by tracking client satisfaction and creating a more personalized experience
[40]. The traditional banks must have a clear plan in place in order to adapt to and gain from FinTech-
fuelled changes but at the same time the banking industry is traditionally more conservative to change, so
any hesitation or ambivalence here could be costly, particularly as new technology introduced not only just
new solutions, but also potential contenders to the banks’ long reign as payment processors. In such a
highly competitive environment wherein the rate of innovations is high and there firms are constrained of
their ability to transfer the costs to the customers such strategies should take precedence that reduces the
risk over a period of time and protect the firm’s market share by take into account the dynamics involved
in revenue generation [41]. In order to position themselves at the center of the payments industry of
tomorrow, banks have to act today to understand, interact with, and cherry-pick from the full palette of
FinTech developments.
IV. CONCLUSION
Frugal Innovations that are sustainable and accessible will be able to generate more revenue and increase
firm value while significantly reducing the resource requirements, cost and thereby enrich the environment
[42]. FinTech is one such path-breaking frugal area which will address the issues in access and use of
financial services without geographic constraints.
In this paper we conducted a review of about 42 papers on FinTech and banking. We covered areas
from the definition of Fintech, the reasons of emergence of fintech, to the 4 sectors where fintech affects
the traditional banks the most. We can conclude from these papers that fintech is really a serious challenge
for the traditional banks more so in the future and the traditional banks will have to find out some way to
face this new challenge. There is still scope for further study on the topic. As Fintech is a new field not
much empirical studies have been conducted on the topic. In the near future with the help of sufficient
data an empirical analysis can be done on this phenomenon and conduct further analysis on how it affect
the traditional banks.
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... Fintech has been segmented based on services they provide by Lee & Jae Shin such as : payments , wealth management, capital market, management of wealth, crowdfunding, Insurance fintech, lending [23]. [2]Wealthtech, payment, lending, insurtech blockchain, etc are some of the major subsegments which have been gaining popularity .Many factors become the reason for the innovation in the financial services sector. Globalization, less intervention in the working of financial markets, high competitiveness, advancement in the technology to name a few. ...
... Earlier customers have to log in to their bank accounts to make any payment but now social media platforms allow such transfers, thanks to blockchain technology. [2]Plastic money like smart cards, debit/credit cards/, ATMs, etc. have paved the way for online purchasing which in turn has boosted e-commerce in the country. This has changed the way of working of the banks. ...
... As per the author, there are some causes for the emergence of Fintech such as: [2]Drastic increment in the users of mobile phones, growth in the social networks, development of big data analytics, etc has been considered as the main contributors in the emergence of the Fintech firms. New products and services are developing with the help of big data analytics which is cost-efficient, highly improvised, other benefits of big data analytics are better decision making, etc. ...
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... The findings demonstrate how the fintech payment industry has challenged banks since its inception in or around 2015, mostly as a result of its superior value propositions, such as promotion with a standardized beta value of 0.349 and a broad range of merchants with a value of 0.153, respectively. (Nair & Menon, 2017) [15] This research paper studies the development of FinTech companies and the difficulties that traditional banks are facing as a result of their rise. There are various challenges faced by traditional banks which include conservative and hierarchical approaches by banks which are hindering the growth of traditional banks. ...
... The findings demonstrate how the fintech payment industry has challenged banks since its inception in or around 2015, mostly as a result of its superior value propositions, such as promotion with a standardized beta value of 0.349 and a broad range of merchants with a value of 0.153, respectively. (Nair & Menon, 2017) [15] This research paper studies the development of FinTech companies and the difficulties that traditional banks are facing as a result of their rise. There are various challenges faced by traditional banks which include conservative and hierarchical approaches by banks which are hindering the growth of traditional banks. ...
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... Nair et al., (2017). [19] 15 To identify internationally relevant emergent fintech trends ...
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