Fintech and Traditional Banking Services

Comparison Between

FinTech and Traditional Banking Services

Contents

1.0 Introduction        1

1.1 FinTech        1

1.2 Traditional Banking Services        2

2.0 Issue Problem        3

2.1 Research Question        3

2.2 Research Objective        3

3.0 Comparison Between FinTech and Traditional Banks        4

3.1 Speed, Convenience and Flexibility        4

3.2 Good Services and Experiences        5

3.3 Cost Structure        6

3.4 Security Systems        7

4.0 Conclusion        8

5.0 References        9

1.0 Introduction

1.1 FinTech

        The new term ‘FinTech’ is getting more and more used by a lot of people. What is FinTech? FinTech, which stands for Financial Technologies, is growing exponentially nowadays in the world and many people start approaching this mainstream. FinTech is a new financial industry emerging in the 21st century that applies technology to improve financial activities (Schueffel, 2016). Originally, this term was used by the back-end of the financial institutions and consumers on of their businesses. However, it has expanded more and more representing broadest definition as any technological innovation in the financial sector, for instance, money transfers, mobile payments, mobile insurance, investment, risk management, asset management, loans, crowdfunding and fundraising and even crypto-currencies like bitcoin.

FinTech grows rapidly over the last few years. It is used by a lot of organizations and individuals which can divided into four broad categories. The first category is business-to-business for banks; second category is for the banks’ clients such as traders or investors; third category is business-to-customers for small businesses and lastly, the fourth category is for the consumers themselves. FinTech is able to create opportunities for all four groups to interact to each other as well as providing more accurate analytics, data and information to them at the same time. FinTech has positive impacts on the small and medium entrepreneur (SME) as well as the individuals such as consumers and investors. Financial magazine Forbes also has listed the Fintech 50 for the leading disrupters in financial technology every year starting from year 2015 (Sharf, 2015).

FinTech startups are small and agile, able to disrupt the lumbering behemoths that are traditional financial institutions and innovate quickly (Marr, 2017). With the emerging of FinTech, going to bank to ask for a loan or seek out a traditional investor is unnecessarily now if you wanted to start a business. It is now easier to start and run a business as small business able to use Fintech such as crowdfunding to raise capital, using mobile payments and money transfer services to accept money instead of credit card, which has revolutionized the way of start up a small business (Marr, 2017).  

One of the reason that FinTech is penetrating to the global market easily and quickly because 21th century is the age of digital now and majority of the people prefer convenience, flexibility, speed and efficiency; FinTech able to provide all of the criteria stated. Using online apps already is the daily activities for many people such as online transferring. In Malaysia, CIMB Bank has invented the first chat-bot banking application, namely CIMB EVA (Enhanced Virtual Assistant) for customers to do their banking activities. With CIMB EVA, customers can easily check their CIMB Current/Savings account balances, pay bills and perform mobile top-up through chat (CIMB News, 2017). This is one of the FinTech example.

1.2 Traditional Banking Services

Traditional banking services is that the bank has physical building with bank staff to offer a full range of services to the customers.  The banks have their own branches in different area to provide services to the customers. The bank staffs are trained to be knowledgeable with banking knowledge no matter in which departments. The customer can conduct a number of banking transactions such as cashing a cheque, opening a new account and applying a loan at a traditional bank. The customers can withdraw money or deposit their money by just walking in to the local bank near their housing area. One thing the customers need to remember is that the bank would not operate in all the public holidays and in weekends as well as the banks only operate in regular business hours. Traditional banking has some serious flaws in hours of operation and convenience. However, to solve this problem, many banks started operating in shopping mall where the operating hours is follow the business hours of the shopping mall. Hence, customers able to do banking transaction outside of the regular banking business hours where customers able to go to bank after work or in weekend too.

Traditional banking has three distinct components, which are capital, deposits, and loans. Firstly, all banks must have the access to capital. This capital is leveraged with deposits and then prudently converted into loans that generate jobs and economic growth. Once Capital is invested, it is leveraged through the collection of deposits that represent the savings or liquid reserves of individuals and businesses in the community (Friends of Traditional Banking, 2017). After the bank comply with the reserve requirements with Central Banks, traditional commercial bank can lend the rest of the deposits in bank as loans to gain interest. Besides, the important element to operate as physical traditional bank is to provide good customer services. This is because high satisfaction of customer services has very direct impact on the business of the bank. High customer satisfaction will increase the business of the bank.

2.0 Issue Problem

In recent years, FinTech started threatening the traditional banks in many countries. In July 2017, there is a news from The National stated that the expansion of FinTech in India could pose a potential threat to traditional retail banks (Bundhun, 2017). Besides, Bank of England Governor Mark Carney has warned that FinTech threat to traditional banks in term of their business model in the light of the fact that FinTech has slowly becomes the mainstream lenders now. He also announced that Fintech would reduce the stability of funding of incumbent banks (Burton, 2017). Moreover, according to a major report by US giant Citi, the traditional banks would have negative impact by FinTech and there are 30 percent of bank staff would face unemployment in the next decade as well as fintech companies in China had already surpassed banks and had both scale and innovation (Australian FinTech, 2017). Malaysia Deputy Finance Minister Datuk Wira Othman Aziz also said that local banks possibly under threat and expect increased competition from fintech (Min Shen, 2017). Many news and articles show that FinTech poses very real threat to the traditional retail bank currently.