How FinTech is Disrupting The Financial Sector

The Financial Services industry comprises of data, rather than goods and services, which makes it one of the key drivers to disruption in today’s business environment. With the internet revolution, and more recently the unlimited capabilities of mobile internet, financial technology has grown exponentially. The innovative financial leaders and enablers who get behind new technologies and look towards the future are setting themselves apart from the status quo.

The dynamic nature of emerging markets creates challenges that developed countries thought of, but at the same time it also opens up opportunities for innovation and growth. Over the years to come, we are set to see faster changes in the access to financial services and the payments landscape, building on the accelerating growth in electronic payments and the advent of new and disruptive market players.

FinTech is becoming a global force which is disrupting and changing the worldwide financial space. It started with an apparent spelling error and became a word that is on everyone's lips. The term financial technology can apply to any innovation in how people transact business, from the invention of money to double-entry bookkeeping. Since the internet revolution and the mobile revolution, financial technology has grown explosively. Originally, FinTech referred to computer technology applied to the back office of banks or trading firms. It is now described as a broad variety of technological interventions into personal and commercial finance.

What is Disruptive Innovation?

With the emergence of FinTech, the buzz these days is that FinTech is "disruptive".

“Disruptive innovation is a term in the field of business administration which refers to an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products, and alliances”

The innovation or disruption brought by FinTech is looking to take market shares away from Financial Institutions (FIs) and provide more options to consumers and commercial customers that are either less expensive, faster, more convenient, more efficient, outside traditional banking channels, a more personalized experience, or may be even all of these.

FinTech vs Financial Institutions/Ongoing Businesses

Another way to consider FinTech as "disruptive" is to look not only at the new entrants but also at existing Financial Institutions and Ongoing Businesses.

There is no doubt about the great benefits that FinTech can bring to businesses and people. An underlying theme on the tables of global CEOs and senior business executives; however, is that such acceleration of innovation and the speed of disruption are hard to understand and to anticipate. This is so even for the best connected and most well informed companies. Indeed, across all markets, there is clear evidence that the technologies that underpin this new revolution are having a major impact on businesses, but none of the industries in the market have been experiencing as much disruption as banks and financial institutions.

Today, we see that banks have started moving past the "testing stage" and have started to collaborate with FinTechs. This collaboration by banks is either done directly or through investments, to assess new technologies without fully committing to FinTechs.

Disruption vs Competition

In the last year or two, we have noted that a pivot towards partnership, rather than competition, has begun to flourish between FinTech startups and FIs. This shift suggests that most FinTech startups are actually enterprise software companies that provide new, innovative ways to do banking in the digital age.

Be it businesses or FIs, all have recognised that many of their clients and product systems are decades old and are in deep need of refreshing. To do this, they are exploring investments in FinTech and in the process, redeveloping themselves from the outside. FinTech is the segment at the intersection of the financial services and technology sectors where technology-focused startups and new market entrants innovate the products and services currently provided by the traditional and once untouchable financial services industry.

As we can see, FinTech will change the usual methods of traditional banking and ways of doing business. Regulators will have to consider new tools to facilitate the delivery of risk and compliance functions to make informed decisions based on real-time information.