Financial Services

The Rise of Fintech: How Technology is Reshaping Financial Services

“People need banking, not banks.” – Ranjit Sarai, President’s Choice Financial

Today, managing your money is easier than ever – a few clicks put you in complete control, leaving the era of dusty bank lobbies and endless queues firmly in the past. Fintech, short for “financial technology”, is giving the financial industry a digital makeover.

Banking, insurance, loans, venture capital, wealth management and other financial services are becoming faster, easier, and more accessible, thanks to innovative technologies. Fintech is all about using the latest tech to completely transform how we handle our finances. Here is what fintech offers:

• Convenience: Fintech apps and services can be accessed from anywhere, at any time, enabling easy finance management on the go.
• Efficiency: Fintech can automate many financial tasks, such as bill payments and transfers, saving users a lot of time and effort.
• Choice: Fintech companies offer a wide range of financial products and services, offering choice and flexibility in managing money.
• Accessibility: Fintech makes financial services more accessible to people who have traditionally been excluded from the financial system, such as the unbanked and underbanked.

The fascinating evolution of fintech

The world has shrunk considerably since the days of the first transatlantic cables. The way we manage our finances has kept pace with this technological revolution. Gone are the days when we solely relied on physical banks. The banking sector has evolved with feature-rich mobile apps becoming the norm, thanks to the continuous evolution of fintech. Here are the key eras that shaped this transformation and the technologies that powered them:

Fintech 1.0 (1886-1967): Building the foundation

This era focused on laying the groundwork for a globalised financial system. The technology drivers were:

• Telegraph and Morse Code: The first transatlantic cable (1866) laid the foundation for faster financial communication, enabling fund transfers across the Atlantic.
• Early electronic fund transfer systems: Pioneering systems like Fedwire (1918) in the US enabled the first electronic fund transfers, albeit with less sophisticated technology compared to today.

Fintech 2.0 (1967-2008): The rise of traditional financial services on computers

This era witnessed the shift from analog to digital, led by established financial institutions. Key technologies include:

• Mainframe computers and core banking systems: These bulky computers housed the core systems that ran banks, automating many processes behind the scenes.
• Automated Teller Machines (ATMs): The 1960s saw the birth of ATMs, allowing people to access their cash 24/7— convenience redefined!
• Credit cards: The introduction of credit cards in the 1950s (Diner's Club in 1950) reduced reliance on cash and fueled a new era of cashless transactions.
• Online banking: By the early 1980s, online banking emerged, allowing limited account management from the comfort of home.

Fintech 3.0 (2008-2014): The age of fintech startups

The financial crisis of 2008 paved the way for innovative startups to challenge traditional institutions. This era saw:

• The rise of mobile banking: Smartphones and mobile apps allow users to check balances, transfer funds, and even pay bills on the go.
• Cloud computing: Cloud technology provides startups with scalable and cost-effective infrastructure to build new financial services.
• Big data analytics: Early adoption of big data enables the personalisation of financial products and services for a broader customer base.

Fintech 3.5 (2014-2017): The era of globalisation

Wonder why this era is not called fintech 4.0. Maybe because it witnessed the ongoing evolution of fintech 3.0 and initial glimpses of 4.0 — there weren't any revolutionary changes, just a transition between established and emerging trends. Regardless, it marked a surge in cross-border financial services. Key technologies included:

• Application Programming Interfaces (APIs): APIs enabled collaboration between financial institutions and fintech companies, fostering innovation in financial products such as India’s revolutionary Unified Payments Interface (UPI).
• Blockchain technology: While still in its early stages, blockchain's potential for secure and transparent transactions sparked interest in the financial sector.

Fintech 4.0 (2018-Present): The Age of disruptive technologies

The current era is driven by continuous innovation and the adoption of disruptive technologies like:

• Artificial Intelligence (AI): Consider this: you might be interested in growing your wealth but feel overwhelmed by investment options. An AI-powered robo-advisor can analyse your financial goals, risk tolerance, and investment timeline. Based on this data, the robo-advisor can suggest a personalised investment portfolio and automatically manage your investments, taking the guesswork out of the process.

Not just automated investment advice, AI powers fraud detection and chatbots (for customer service).

• Machine Learning (ML): ML personalises financial experiences, predicts future financial needs and automates risk assessments. For example, an ML advisor can analyse your spending habits and suggest a smart savings plan tailored to your goals.
• Open banking: Imagine you're a small business owner drowning in receipts and struggling to manage your finances. Open banking regulations come to the rescue! These regulations allow you to securely share your financial data (transactions, balances) with authorised budgeting apps. This isn't just about convenience – it fosters competition among app developers. With access to your data, these apps can offer more features and personalised insights, helping you take control of your finances.

The future of fintech

The global fintech market is surging, expected to hit USD 608.35 billion by 2029 from USD 312.92 billion in 2024, with a CAGR exceeding 14% (Mordor Intelligence).

As technology continues to evolve, we can expect even more exciting developments in fintech. Biometrics, RegTech (technologies for regulatory compliance), and the continued exploration of blockchain are just a few areas to keep an eye on. The future promises a financial landscape that's not only convenient and efficient but also highly personalised and secure.

How Infosys BPM can help

We understand that success in fintech requires a powerful combination of financial expertise (retail & commercial banking, mortgages, consumer finance, etc.) and cutting-edge technology. Infosys BPM's Financial Services is here to help uncover new possibilities and deliver real value to your customers.