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Vol. 11, No. 8, 2021, E-ISSN: 2222-6990 © 2021 HRMARS
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Financial Technology (FinTech) and its Role in Supporting
the Financial and Banking Services Sector
Amer Abdelwali AlMomani, Khalid Faris Alomari
To Link this Article: http://dx.doi.org/10.6007/IJARBSS/v11-i8/10625 DOI:10.6007/IJARBSS/v11-i8/10625
Received: 22 June 2021, Revised: 28 July 2021, Accepted: 17 August 2021
Published Online: 25 August 2021
In-Text Citation: (AlMomani & Alomari, 2021)
To Cite this Article: AlMomani, A. A., & Alomari, K. F. (2021). Financial Technology (FinTech) and its Role in
Supporting the Financial and Banking Services Sector. International Journal of Academic Research in
Business and Social Sciences, 11(8), 1793–1802.
Copyright: © 2021 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
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Vol. 11, No. 8, 2021, Pg. 1793 - 1802
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JOURNAL HOMEPAGE
International Journal of Academic Research in Business and Social Sciences
Vol. 11, No. 8, 2021, E-ISSN: 2222-6990 © 2021 HRMARS
1794
Financial Technology (FinTech) and its Role in
Supporting the Financial and Banking Services
Sector
Amer Abdelwali AlMomani
PhD Candidate, Utara University
Email: amer_almomny@hotmail.com
Khalid Faris Alomari
PhD Finance and Banking
Email: Dr.khalidalomari@hotmail.com
Abstract
Fintech is a business and banking company that translates to financial technology. It is the
technology used and applied in the financial services sector including its involvement in
mobile payments, money transfer, loans, fundraising and asset and property management.
Fintech investment has grown exponentially recently in the world and is likely to continue to
increase, given that Fintech is not only related to the financial services sector, but all
companies that deal with the financial services industry and Fintech startups are usually smart
and capable of causing disruption. . The big impacts that organizations can have. Conventional
finance can innovate very quickly.
Fintech is described as those products and services that rely on technology to improve the
quality of traditional financial services. They are quick and easy. In most cases, these services
and products are developed by startup companies, which seek to improve retail and
corporate banking in cooperation or competition with existing financial service providers.
This paper seeks to shed light on the concept and importance of financial technology and how
banks and financial technology companies benefit from the existing cooperation between
them for the benefit of both parties.
Keywords: Banks, Financial Technologies, Financial Services, Information Systems.
Introduction
The current stage is a critical stage for workers in the financial services sector. With this huge
amount of technological innovations that have changed the way of doing business,
transferring money and daily transactions, the financial technology sector is one of the most
important sectors that receive support from decision makers around the world. With the
increasing ability to bring about a technological revolution in this vital sector, and the more
innovation and efficiency it is witnessing to achieve prosperity and growth, it is not surprising
that the expectations of investments in this sector reach 15 billion US dollars by the year 2022.
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Innovating more advanced financial technology services to meet the needs of customers
growing.
Any country that seeks to allow a new industry to grow and develop, must create an
environment that helps startups and entrepreneurship grow as well because the right
business systems help the emergence of global centers for emerging companies in the
technology industry.
Perhaps the main components of creating a positive environment are building the ecosystem
and regulatory frameworks that make it easy to do business in a country or region and in this
context, some countries has taken the lead when it comes to encouraging the development
of startups in the Fintech industry. This research paper seeks to answer the following main
question: How can financial technology contribute to improving traditional financial services?
Under this main question, the following sub-questions fall:
1- What is financial technology?
2- How can banks benefit from financial technology companies?
3- What are the challenges facing the fintech industry?
In order to answer the main question and sub-questions, a number of points will be addressed
in this article, and then a set of recommendations will be made.
The Concept of Financial Technology
The term “FinTech” denotes companies or representatives of companies that combine
financial services with modern, innovative technologies (Dorfleitner, Hornuf, & M., 2017).
Financial technology is closely related to information and communication technology (Yusuf,
2005), and it is an activity through which institutions use information and communication
technologies in order to distribute financial services in a more effective and less costly
manner.
The term Fintech refers to every institution that intervenes in this field in order to propose
innovative or innovative technological solutions to its customers. They are start-up companies
that try to acquire market shares at the expense of traditional players in the financial services
sector (Peter, Robert, Chris, & Weber, 2018).
Banks are trying to invest in order to resist competition from new entrants who are generally
not from the banking and financial sector (Claessens, 2009). Here, it was possible to talk about
the ultimate goals of the economic intelligence of enterprises, which is largely based on
information technology, which they share among themselves, but it remains difficult in some
sectors less exposed to the risks of competition and commercial than others, to understand
that the process of economic intelligence does not depend only on a single study of
competitors or on the protection of Excessive information systems. Therefore, it must be
emphasized that the ultimate goals of economic intelligence expanded to include
management as a whole, as it was possible to talk about a model of management through
economic intelligence, since institutions develop in a knowledge and information intensive
economy where they are formed Its capacity of collected and produced information that is
disseminated in official and unofficial channels, and the way this information is managed
determines the economic performance of institutions (ferrini, 2012).
The concept of economic intelligence arises at the same time from the strategies of
institutions, which are slowly structuring according to administrative innovations, and this is
what made the status of information systems become necessary in the management of
institutions, as it knew four stages in its development:
Stage one from 1960-1980: Economic information.
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Stage two from 1980-1990: Vigilance and the means of collecting and processing strategic
information.
Stage three from 1990-2000: Organizing the network of economic intelligence in institutions
and between institutions.
The 2000s: The Everyday Culture and Practice of Economic Intelligence.
In this context, economic intelligence has turned into a very effective way to manage
informational risks, and therefore there is now a strong relationship between economic
intelligence and risk management in institutions. In fact, administrative innovations
contribute to reducing the state of uncertainty, as decision-makers in institutions are aware
with various risks that can be exposed, because risks that cannot be managed or controlled
will accumulate over time to eventually lead to crises.
The way Financial Technology Institutions Work
It can be summed up in the following points (Kelvin & Anna, 2018):
- The use of innovative technologies, especially mobile phones, a computer or digital tablet
connected to the Internet or any other communication network in order to offer the end
customer products and services that are richer and/or less expensive than those of other
operators are. Significant in the costs of entering the market;
- Evolution of customer behavior (connected mobile phones, geo-tagging on social networks);
creating an appropriate regulatory and legal environment;
- Creating a good partnership and relationship with banks;
- New innovations in the field of financial and banking services.
Characteristics of Financial Technology Companies
They can be mentioned as follows (Shu Zhang, 2020)
1- Access to all users: In traditional financial services, the customer is evaluated on the basis
of his ownership of large assets or his periodic receipt of huge income, which makes these
services limited to certain social classes, while emerging companies target all classes and
groups and continuously enhance their capabilities through partnerships or redesign of
products designed for low-income customers.
2- Flexibility and affordability: Fintech startups have several offers and plans to pay for goods
and services, especially clean energy, that are flexible enough to suit customers on their
differences on a daily, weekly or even monthly basis.
3- Customer-centric design: Fintech companies focus on user demands and design simple,
easy products.
3. Speed: Powerful analytics allow fintech companies to move quickly, with transactions
completed in a few minutes using big data, algorithms and machine learning, and compared
to traditional small insurance companies that can take several days before a new policy is
approved or a loan is approved, this applies in lending and when verifying digital identity.
4- Data policy first, mobile phones first: This policy can improve the products and services
provided to design suitable services for them. There is no doubt that powerful analytics allow
business owners to make better decisions and seize opportunities.
Areas of Financial Technology and its Importance
Despite its late start, financial technology is gaining at the present time, especially in some
countries of the Middle East and North Africa many benefits. Among the benefits that
financial technology gives, can be summarized in the following points (Emilio Segura, 2020):
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▪ Promoting financial inclusion, inclusive growth and diversification of economic activity
through innovations that help provide financial services to those who do not interact
with the banking system.
▪ Facilitate the availability of alternative sources of financing for small and medium
enterprises.
▪ Achieving financial stability through the use of technology to ensure regulatory
compliance and risk management.
▪ Facilitating foreign trade and remittances by workers abroad by providing efficient and
cost-effective mechanisms for cross-border payments.
▪ The use of electronic payment methods increases the efficiency of government
operations, which calls for further reforms to bridge the gaps in the frameworks
related to regulations, consumer protection and information security.
Global investments in financial technology have achieved rapid growth in the past five years,
and expectations are that they will continue to grow strongly. The value of investments in
financial technology has increased more than tenfold between 2012-2015, despite the fact
that the integration of institutions operating in the financial technology sector in The United
States led to a decline in global investments in 2016. Growth continued in other regions,
including the Middle East and North Africa, and investments recorded a strong positive
rebound in the first half of 2017.
Companies in the fintech industry can be divided into four main categories, depending on its
business models. Which can be clarified and explained through the following figure:
Figure 1: Segments of the Fintech industry
Source: “Fintech in Germany” (Gregor Dorfleitner, Lars Hornuf, Matthias Schmitt, 2017)
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Partnership between Financial Technology Companies and Banks (Opportunities and
Challenges)
The rapid growth in financial technology represents a challenge or an opportunity for banks
depending on the strategy of the start-up company and the bank’s strategy, as banks seek to
find ways to re-invent and renew the services of the banking sector such as introducing smart
automation of banking operations, and this will accelerate the work of banks in terms of
performing recurring business that they can Its adoption as tokens, phone banking, and
strategic methods that will shape the future of banking and payment transactions through
artificial intelligence and smart workflow systems. On the other hand, emerging companies
seek to find innovative solutions in the field of financing and lending operations and various
financial and banking services in order to attract the largest number of bank customers
(McGill, 2008).
The following figures show the most attractive areas for financial technology companies,
especially payments and electronic commerce, in addition to the various opportunities and
challenges facing this type of company. Among the most important areas of investment in
financial technology during 2019, payments accounted for 56% and e-commerce accounted
for 36%.
Fintech companies can help banks by finding a partnership between them, which represents
78%, especially in the field of payments and electronic commerce, and among the most
important benefits or advantages for the two parties behind this partnership is achieving
income, finding new applications, reducing costs and creating new business models especially
With the emergence of FinTech Bank, one of the most important advantages of this
cooperation is better access to financing, and the banks also have a strong relationship with
customers for greater trust.
The Role of Financial Technology in the Banking Sector
Although innovations in FinTech are encouraged and their adoption is gradually increasing, it
is not yet clear how receptive and willing to integrate them into the banking sector's multiple
channels from process automation and back office solutions to clients. In an effort to clarify
the central role of FinTech startups in the banking sector, it is necessary to highlight the great
potential inherent in successful collaboration between banks and FinTech companies. The
great progress of emerging companies in financial technology and its impact on transforming
fields and sectors to increase cooperation with financial institutions around the world, in
order to show the true adoption of financial technology and how to take advantage of digital
trends to support the growth of this sector (Wilson, creating strategic value through financial,
2017). The banking sector and emerging companies in financial technology push decision
makers to provide additional facilities to stimulate business growth and work to provide
appropriate and essential information for the development of the field and the dissemination
of information on the impact of this technology.
There are opportunities for Fintech and how to engage with digital customers as a digital
social platform that offers micro-loans to small-scale entrepreneurs about data collection and
analysis is essential to understanding customer behavior. FinTech financing relates to
financing innovation not only with investment, but also with providing opportunities for
FinTech innovators to build platforms that change the future of financial services, as Fintech
startups have received investments of more than $100 million in the last ten years, and the
number of startups and money invested in This field will more than double by 2025.
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The Financial Technology in the Middle East and North Africa report indicates that startups
aim to raise $50 million in funding in 2018, an increase of 270 percent from 2017, when $18
million was announced.
105 fintech startups have launched until the beginning of 2016, a number was rise to 250 by
2020, half of these companies provide payment solutions, while a third of them provide
lending and fundraising services, USA or USA companies in the field of fintech remained at
the top of the global ranking Top ten companies in the world among the 100 FinTech
companies for the year 2020 (Schroer, 2021).
1. Clyde - USA
2. Digit - USA
3. Flywire - USA
4. IHS Markit Digital - USA
5. MANTL - USA
6. Remitly - USA
7. Riskified - USA
8. Spring Labs - USA
9. Robinhood - USA
10. Chime - USA
The transition from a cash-based economy to a cashless economy will increase dramatically.
Fintech startups were launched in 12 countries until late 2015 and were distributed between
the countries of the Gulf Cooperation Council, the Levant and North Africa, but only four
countries host 75% of the startups almost in this area are the Emirates, Lebanon, Jordan and
Egypt.
The majority of financial technology companies operate in the UAE, which puts this country
in the first place in terms of the number of emerging companies in this field and the quality
of their business. (Democrance) and Blockchain Technology (Bit Oasis).
The incubating regional environment witnessed a lot of activity in the past year, with the
opening of the doors of two accelerators in Cairo and one in Dubai during 2016, in addition
to the launch of the “Regulatory Lab” in Abu Dhabi, which is the first “sandbox” for financial
technology in the Middle East and North Africa region. . This increased support fills a gap that
emerging companies in this field are trying to overcome on their own. 44% of these
companies cooperate with banks and other major institutions, and another 44% aspire to
build partnerships in the future. Business accelerators (Wilson, 2017), increased investments,
and cross-discipline partnerships are expected to lead to a FinTech renaissance in the coming
years.
Fintech opportunities in the Middle East and North Africa region remain subject to the
agreement of all decision makers, entrepreneurs, investors and customers, in addition to the
central role of governments, as they set legal frameworks and are able to encourage
investment and regulate national infrastructure for financial technology. Whereas, fintech
startups must avoid risks by cooperating with major companies and understanding the laws
that regulate the market in which they operate. Given the diversity in the region’s markets, it
appears that every country has a suitable sector for it in financial technology, for example,
the opportunity for financial inclusion in Egypt differs from the booming e-commerce sector
in the Emirates, and this does not mean that there are no sectors, as start-ups can look to the
regional market and not Local, for example, payment services extend to the Gulf Cooperation
Council and non-Gulf markets as well.
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There is no doubt that the expansion of financial technology is more difficult than the
expansion of other fields, but an increasing number of entrepreneurs are succeeding in it.
(Lakuma, 2019) Fintech is a distinct field today, yet it has a real potential to change the
structure of financial services making them faster, cheaper, safer, more transparent and more
accessible. Even in the Middle East and North Africa, governments recognized the potential
of fintech, as the Abu Dhabi Global Market launched the “Regulatory Lab” initiative, the
region’s first fintech pilot space, meaning that start-ups and other companies that will operate
in this space will be subject to regulatory framework lighter restrictions.
Fintech can have a measurable impact on different economies, and one of its outcomes is the
ability to unlock the potential of all types of startups in the MENA region, because it has the
potential to lower market entry cost and failure rates by improving access to finance,
technology and customers. Fintech is facilitating capital raising by introducing new forms of
financing such as P2P lending, crowdfunding and crowd equity. This is in great demand in the
MENA region, where SME lending is 8% of total bank lending compared to the equivalent of
18% in middle-income countries. Zoomaal, a crowdfunding platform for empowering Arab
creative projects, has successfully helped its members raise $1.7 million. Similarly, Beehive,
the world's first independently certified Shariah-compliant direct finance platform, managed
to inject 25 million UAE dirhams (about $7 million) into more than 50 SMEs in its first year.
As for Shariah-compliant crowdfunding, the investment platform Liwwa, which was founded
in the Harvard Innovation Lab, lent $1.6 million in just one year in Jordan alone.
Technology contributes to companies' comparative advantage. The more technologically
advanced the startups in the Middle East and North Africa are, the more competitive they are
at the regional and global levels.
The latest FinTech startups apply new technologies in the financial sector, but these
technologies can be applied in other sectors as well. Startups in the Middle East and North
Africa can benefit from the growing presence of FinTech in the region by spreading
knowledge.” The new ones that are developed in this sector and provide new services based
on these technologies.
Founded in 2015 in Dubai, BitOasis is a fintech startup that is laying the foundations and
infrastructure for new digital payment products using blockchain, and has since contributed
to the Dubai-based Global Digital Transaction Council. An initiative that brings together the
public and private sectors and encourages the adoption of digital transactions "Blockchain".
Subsequently, in early 2016 the government of Dubai launched the “Blockchain” strategy and
announced that by 2021 all of its documents will be digital and 1,000 companies will use
digital technologies.
According to the Wamda Research Lab report on Business Development and Expansion, 29%
of startups in the Middle East and North Africa reported that their main challenge is to
generate revenue. Geographically over a vast area.
Financial technology offers an effective solution to the problems of late payments and
provides faster and cheaper payment methods. For example, the electronic payment gateway
“PayFort” provides a dedicated payment service for startups called “START” and this service
provides security and fast payments to startups, and financial technology increases the
number of potential clients promotes financial inclusion through new forms of payments.
Fintech provides new money management services that improve financial planning for
startups, lead to better business development and reduce failure rates. For example, the
startup “Business Pull” that was established in Saudi Arabia in 2010 develops and manages
cloud software services that target Business sector in the Middle East and North Africa.
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In 2014, she launched "Dafater", a cloud-based ERP solution designed specifically for
companies in Saudi Arabia. This solution performs traditional accounting tasks for those who
do not hire an accountant or want an independent expert accountant to conduct an
investigation into how employees are using the system.
Conclusion
Financial technology offers many possibilities and advantages, but an enabling environment
must be provided, such as providing appropriate regulations for the work of emerging
technology companies in this field, in addition to information security and the provision of
information and communication technology infrastructure. The development of financial
technology also depends on the review of legal and regulatory frameworks, especially the
clarity of laws related to the circulation of digital financial products, and the management of
risks that arise from newly developed financial and banking products and services, using
regulatory laboratories.
Contribution
This study sheds light on the issue of financial technology (FinTech) and its role in supporting
the financial sector. Therefore, this study attempted to provide a theoretical framework for
the importance of financial technology at the present time. As the financial market has
become more important in our daily lives than before, technology has an indispensable base
in today's economy. Our study aimed to introduce FinTech companies, and how they can
change the financial situation in financial institutions and make services easy. Furthermore,
our study provides a broader scope for all financial institutions interested in fintech and its
effects. FinTech is critical today and our findings can help financial institutions, particularly
banks, who are interested in knowing how FinTech is impacting financial institutions, to adopt
this technology more broadly, and how to deal with this impact in order to survive in this
rapidly changing environment.
Recommendations
1. Developing effective models for managing risks associated with financial technology
innovations, which requires continuous monitoring to identify risks, especially those that
threaten financial stability.
2. Establishing protection systems, especially those related to protection against any
type of electronic attack, which requires regulatory frameworks for information security and
information exchange.
3. Improving the information and communication technology infrastructure.
4. Improving the business environment by easing restrictions on foreign investments in
order to provide more capital through FinTech companies.
5. Seeking to increase financial awareness, which will allow more use of digital services.
Approved footnotes and references.
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