|‘Fintech’ is a contraction of the words ‘finance’ and ‘technology’. According to Financial Stability Board (FSB), of the BIS, ‘Fintech is technologically enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services.’ In other words, these are the technology-based businesses that are competing against, enabling or collaborating with existing FIs.|
Fintech companies are disrupting every facet of the traditional financial services business be it in payments, lending, asset management and insurance etc and pose challenges to business models and strategies of existing financial institutions. However, these also bring opportunities for both the incumbent market participants and newcomers. At the same time, innovation can create new risks for individual FIs, consumers of financial services, as well as the financial system as a whole.
|Expanding the scope of Fintech|
|The scope of products and services offered by Fintechs is expanding rapidly. Where once companies focused on payment applications, lending and money transfers, the industry’s reach has extended into many other business areas (Figure 1). The shift brings Fintechs away from a focus on frontline activities to a broad engagement throughout the value chain. The new offerings cut across a wide swath of financial services: retail, wealth management, small and midsize enterprises (SMEs), corporate and investment banking and insurance.|
|Various Fintechs using a variety of technologies and are active in each of these areas eg Robo-advisory systems that provide automated recommendations with little human input, use tested technologies to meet customer needs, while others pursue more experimental technologies such as blockchain systems that track and store an expanding series of transactions to help reduce infrastructure costs and improve efficiency.|
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