Fintech Trends – Digital Banking Improvements Driving Change?

<p>The financial
world is undergoing a dramatic shift, fueled mostly by the rise of financial
technology, or fintech. Digital banking has played an important part in this
transformation. Traditional financial institutions are under growing pressure
to adapt and innovate in response to the disruptive developments brought about
by digital banking. </p><p>The Fintech
Revolution:</p><p>Fintech, a
combination of "financial" and "technology," refers to a
wide range of developments aimed at simplifying and improving financial
services. Fintech is changing the way we handle and access our funds, from
mobile payment apps to blockchain-based solutions. The focus of this revolution
has been on digital banking, which has witnessed significant growth and
adoption in recent years.</p><p>Ascendancy
of Digital Banking:</p><p>Digital
banking, often known as online or internet banking, refers to the delivery of
banking services via digital means such as websites and mobile apps. It
provides a more accessible and simple alternative for people to manage their
finances, from checking balances to applying for loans. The appeal of digital
banking stems from its ease of use and low cost, which has led to broad
adoption.</p><p>Key Trends
Driving Change:</p><p>Several
significant trends in digital banking are transforming the financial landscape:</p><ul><li>Mobile-First
strategy: As smartphones become more common, banks are taking a mobile-first
strategy to ensuring their apps are user-friendly, safe, and feature-rich.</li><li>Enhanced User
Experience: To boost overall customer happiness, banks are prioritizing user
experience (UX) by developing intuitive interfaces, simplifying operations, and
providing customisation.</li><li>Open Banking:
Open banking efforts promote the sharing of financial data between banks and
third-party providers via secure APIs, increasing competition and broadening
the range of financial services offered.</li><li>Artificial
Intelligence (AI) and Machine Learning: AI and machine learning are powering
chatbots, virtual assistants, and predictive analytics tools in digital
banking, automating customer support and personalizing suggestions.</li><li>Contactless
Payments: Consumers choose mobile wallets and contactless cards for their
convenience and hygienic benefits.</li><li>Digital
Identity Verification: To improve security and streamline onboarding processes,
digital banks are utilizing advanced identity verification methods such as
biometrics.</li><li>Embedded
Finance: The notion of embedded finance entails incorporating financial
services into non-financial products or services, hence simplifying
transactions for consumers.</li><li>Cryptocurrency
and Blockchain: Some digital banks are investigating cryptocurrency
integration, offering services such as bitcoin custody and trading.</li><li>Peer-to-Peer
Lending: Peer-to-peer lending systems connect borrowers with investors,
allowing for interest income and portfolio diversification.</li><li>Farmland:
Investing in farmland is becoming more popular because it provides exposure to
the agriculture sector as well as rental revenue.</li><li>Collectibles
and paintings: Tangible assets such as rare collectibles and paintings are
becoming appealing investment options, however they do necessitate competence
in valuation and storage.</li><li>Sustainability
and ESG: Environmental, Social, and Governance (ESG) factors are becoming
increasingly essential, prompting digital banks to offer ESG-focused products
and support eco-friendly practices.</li></ul><p>The Battle
for Deposits: Traditional Banks vs. Fintechs in the Age of Embedded Finance</p><p>The financial
industry is <a href="https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review">witnessing
a fierce battle for supremacy</a> between traditional banks and agile fintech
companies, with one key battleground being the fight for customer deposits.
This contest is driven by the <a href="https://www.forbes.com/sites/ronshevlin/2021/04/12/embedded-fintech-versus-embedded-finance-jumpstarting-new-product-innovation-in-banks/?sh=1bc3608a5892">rise
of embedded finance and embedded fintech</a>, which are reshaping the way
people access and manage their money.</p><p>Embedded
finance, characterized by the integration of financial services into
non-financial platforms, <a href="https://www.statista.com/statistics/1272191/embedded-finance-market-size-usa/">is
set to generate $230 billion in revenue by 2025</a>. While this represents a
substantial market opportunity, it poses a significant challenge to incumbent
banks. These banks must adapt to the changing landscape and fend off fintech
disruptors who are vying for a slice of the pie.</p><p>To remain
competitive, traditional banks are exploring strategies to capitalize on the
emerging distribution channels created by embedded finance. Large banks, in
particular, have the resources and partnerships to expand their product and
service offerings to a broader audience. However, mid-sized institutions face a
more challenging road, often being excluded from these lucrative partnerships.</p><p>This is where
embedded fintech enters the scene. It involves integrating innovative fintech
products and services into traditional banks' offerings. This approach enables
banks to harness the capabilities and expertise of fintech startups, without
needing to reinvent the wheel.</p><p>The potential
for embedded fintech is vast, encompassing services like bill negotiation, data
breach protection, wealth transfer management, and cryptocurrency investing. By
embracing these opportunities, banks can keep pace with their fintech
competitors and offer customers a broader range of services.</p><p>In the ongoing
battle for customer deposits and loyalty, banks that adapt and adopt embedded
fintech strategies will maintain their relevance and competitiveness. The
integration of financial services into everyday life is no longer a distant
vision—<a href="https://www.financemagnates.com/fintech/understanding-the-embedded-finance-landscape/">it's
becoming a reality</a>, and traditional banks are rising to the challenge posed
by agile fintechs.</p><p>Conclusion:</p><p>Improvements in
digital banking are causing considerable shift in the financial system. The
simplicity and accessibility provided by digital banking have resonated with
customers, resulting in widespread adoption. As a result, traditional banks are
adjusting and upgrading their offers in order to remain competitive.</p><p>The future of
digital banking seems bright, with trends such as central bank digital
currencies (CBDCs), decentralized finance (DeFi), and hyper-personalization
altering the environment. However, it is critical for both customers and
financial institutions to be updated about these developments in order to make
informed decisions and remain competitive in this fast changing environment.</p>

This article was written by Pedro Ferreira at www.financemagnates.com.