Application Of Digital Financial Services Innovation
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Wikipedia
Digital banking is part of the broader context for the move to online banking, where banking services are delivered over the internet. The shift from traditional to digital banking has been gradual and remains ongoing, and is constituted by differing degrees of banking service digitization. Digital banking involves high levels of process automation and web-based services and may include APIs enabling cross-institutional service composition to deliver banking products and provide transactions. It provides the ability for users to access financial data through desktop, mobile and ATM services.
A digital bank represents a virtual process that includes online banking and beyond. As an end-to-end platform, digital banking must encompass the front end that consumers see, back end that bankers see through their servers and admin control panels and the middle ware that connects these nodes. Ultimately, a digital bank should facilitate all functional levels of banking on all service delivery platforms. In other words, it should have all the same functions as a head office, branch office, online service, bank cards, ATM and point-of-sale (POS) machines.
The reason digital banking is more than just a mobile or online platform is that it includes middle ware solutions. Middle ware is software that bridges operating systems or databases with other applications. Financial industry departments such as risk management, product development and marketing must also be included in the middle and back end to truly be considered a complete digital bank. Financial institutions must be at the forefront of the latest technology to ensure security and compliance with government regulations.
The earliest forms of digital banking trace back to the advent of ATMs and cards launched in the 1960s. As the internet emerged in the 1980s with early broadband, digital networks began to connect retailers with suppliers and consumers to develop needs for early online catalogues and inventory software systems.
By the 1990s the Internet became widely available and online banking started becoming the norm. The improvement of broadband and ecommerce systems in the early 2000s led to what resembled the modern digital banking world today. The proliferation of smartphones through the next decade opened the door for transactions on the go beyond ATM machines. Over 60% of consumers now use their smartphones as the preferred method for digital banking.
The challenge for banks is now to facilitate demands that connect vendors with money through channels determined by the consumer. This dynamic shapes the basis of customer satisfaction, which can be nurtured with Customer Relationship Management (CRM) software. Therefore, CRM must be integrated into a digital banking system, since it provides means for banks to directly communicate with their customers.
There is a demand for end-to-end consistency and for services, optimized on convenience and user experience. The market provides cross platform front ends, enabling purchase decisions based on available technology such as mobile devices, with a desktop or Smart TV at home. In order for banks to meet consumer demands, they need to keep focusing on improving digital technology that provides agility, scalability and efficiency.
Fintech a portmanteau of “financial technology” refers to firms using new technology to compete with traditional financial methods in the delivery of financial services. Artificial intelligence, Blockchain, Cloud computing, and big data are regarded as the “ABCD” (four key areas) of FinTech. The use of smartphones for mobile banking, investing, borrowing services, and cryptocurrency are examples of technologies designed to make financial services more accessible to the general public. Financial technology companies consist of both startups and established financial institutions and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies. A subset of fintech companies that focus on the insurance industry are collectively known as insur tech or insure tech
After reviewing more than 200 scientific papers citing the term “fintech”, a study on the definition of fintech concluded that “fintech is a new financial industry that applies technology to improve financial activities.” Fintech is the new applications, processes, products, or business models in the financial services industry, composed of one or more complementary financial services and provided as an end-to-end process via the Internet.
Artificial Intelligence (AI), Blockchain, Cloud Computing, and Big Data are considered the four key areas of Fin Tech. Artificial intelligence refers to the intelligence demonstrated by machines, in contrast with “natural intelligence” displayed by humans and animals. AI is assuming an increasingly important role in traditional banking as it provides technologies such as voice recognition, natural language processing, and computer vision for user-account management and fraud detection, machine learning methods and deep learning networks for anti-money laundering and credit modeling. Mobile and internet payment systems are closely connected to cloud computing. The past ten years have witnessed increasing adoption of cloud computing by financial institutions around the globe.
Financial technology has been used to automate investments, insurance, trading, banking services and risk management.
The services may originate from various independent service providers including at least one licensed bank or insurer. The interconnection is enabled through open APIs and open banking and supported by regulations such as the European Payment Services Directive.
Robo-advisers are a class of automated financial adviser that provide financial advice or investment management online with moderate to minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms, and thus can provide a low-cost alternative to a human advisers.
Global investment in financial technology increased more than 12,000% from $930 million in 2008 to $121.6 billion in 2020. 2019 saw a record high with the total global investment in financial technology being $215.3 billion, of which Q3 alone accounted for $144.7 billion in investment.
In H1 2021, Fintech deal volume hit 2,456 deals accounting for $98 billion in investment. Global VC investment was higher than $52 billion in H1’21, close to the annual record of $54 billion seen in 2018.
H1’21 saw $21 billion in corporate-affiliated VC investment. CVC deal volume reached a high of 284 in Q1’21, and then grew further to 312 in Q2’21.
The Americas saw about $51.4 billion of fintech investment in H1’21, with the US alone accounting for $42.1 billion. In the EMEA region, investment in fintech was very robust at $39.1 billion. In Asia-Pacific, fintech investment grew between H2’20 and H1’21 — rising from $4.5 billion to $7.5 billion, although it was subdued in comparison with previous record highs.
The nascent financial technology industry in London has seen rapid growth over the last few years, according to the office of the Mayor of London. Forty percent of the City of London’s workforce is employed in financial and technology services. As of April 2019, about 76,500 people form the UK-wide FinTech workforce, and this number is projected to rise to 105,500 by 2030. Of the current fintech workforce in the UK, 42% of workers are from overseas.
In Europe, $1.5 billion was invested in financial technology companies in 2014, with London-based companies receiving $539 million, Amsterdam-based companies $306 million, and Stockholm-based companies receiving $266 million in investment. After London, Stockholm is the second highest funded city in Europe in the past 10 years. Europe’s fintech deals reached a five-quarter high, rising from 37 in Q4 2015 to 47 in Q1 2016. Lithuania is starting to become a northern European hub for financial technology companies since the news in 2016 about the exit of Britain from the European Union. Lithuania has issued 51 fintech licenses since 2016, 32 of those in 2017.
Fintech companies in the United States raised $12.4 billion in 2018, a 43% increase over 2017 figures.
In the Asia Pacific region, the growth will see a new financial technology hub to be opened in Sydney, in April 2015. According to KPMG, Sydney’s financial services sector in 2017 creates 9 per cent of national GDP and is bigger than the financial services sector in either Hong Kong or Singapore. A financial technology innovation lab was launched in Hong Kong in 2015. In 2015, the Monetary Authority of Singapore launched an initiative named Fintech and Information Group to draw in start-ups from around the world. It pledged to spend $225 million in the fintech sector over the next five years.
While Singapore has been one of the central Fintech hubs in Asia, start ups in the sector from Vietnam and Indonesia have been attracting more venture capital investments in recent years. Since 2014, Southeast Asian Fintech companies have increased VC funding from $35 million to $679 million in 2018 and $1.14 billion in 2019.
Fintech companies use a variety of technologies, including artificial intelligence (AI), big data, robotic process automation (RPA), and blockchain.
AI algorithms can provide insight on customer spending habits, allowing financial institutions to better understand their clients. Chat bots are another AI-driven tool that banks are starting to use to help with customer service.
Big data can predict client investments and market changes in order to create new strategies and portfolios, analyze customer spending habits, improve fraud detection, and create marketing strategies.
Robotic Process Automation is an artificial intelligence technology that focuses on automating specific repetitive tasks. RPA helps to process financial information such as accounts payable and receivable more efficiently than the manual process and often more accurately.
Blockchain is an emerging technology in finance which has driven significant investment from many companies. The decentralized nature of blockchain can eliminate the need for a third party to execute transactions.
Financial magazine Forbes created a list of the leading disruptors in financial technology for its Forbes 2021 global Fintech 50. In Europe there is a list called the FinTech 50, which aims to recognise the most innovative companies in fintech.
A report published in February 2016 by EY commissioned by the UK Treasury compared seven leading fintech hubs: the United Kingdom, California, New York City, Singapore, Germany, Australia and Hong Kong. It ranked California first for ‘talent’ and ‘capital’, the United Kingdom first for ‘government policy’ and New York City first for ‘demand’.
For the past few years, PwC has posted a report called the “Global Fintech Report”. The 2019 report covers many topics of the financial technology sector, describing the landscape of the “Fintech” industry, and some of the emerging technologies in the sector. And it provides strategies for financial institutions on how to incorporate more “fintech” technologies into their business.
Finance is seen as one of the industries most vulnerable to disruption by software because financial services, much like publishing, are made of information rather than concrete goods. In particular blockchains have the potential to reduce the cost of transacting in a financial system. While finance has been shielded by regulation until now, and weathered the dot-com boom without major upheaval, a new wave of startups is increasingly “disaggregating” global banks. However, aggressive enforcement of the Bank Secrecy Act and money transmission regulations represents an ongoing threat to fintech companies. In response, the International Monetary Fund (IMF) and the World Bank jointly presented Bali Fintech Agenda on October 11, 2018 which consists of 12 policy elements acting as a guidelines for various governments and central banking institutions to adopt and deploy “rapid advances in financial technology”.
The New York Venture Capital Association (NYVCA) hosts annual summits to educate those interested in learning more about fintech. In 2018 alone, fintech was responsible for over 1,700 deals worth over 40 billion dollars. In 2021, one in every five dollars invested by venture capital has gone into fintech.