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Fintech Impact, Compliance and Challenges to Finance Industry
Fintech is a term that normally indicates financial technology. FinTech means all those technologies used for the enhancement of the functions of the financial service industry. Innovative use of technology or its application in the design, operation and delivery of financial products and services.
As we know, digital payments, blockchain etc are examples of fintech.
What is the Impact of FinTech on Finance
Large innovations happened in the finance sector especially banking, asset management, payment segments and the insurance sector.
Impact on Banking
Development in technology and use of the mobile and allied services helped to develop new services. In FinTech banking, all the products and services are delivered based on technological innovation. Technology can change the banks from the traditional attitude at all levels of their operation. The online loan provider is an example of it. Many traditional banks also adopt innovations in finance and technology.
When we speak about regulatory compliance, a FinTech firm applying for a banking license also needs to be considered a bank. So all the controlling and supervisory requirements need to implement in all these FinTech banks. FinTech banks are exposed to high risk as compared to traditional banks. The regulators need to ensure that an adequate risk management process is existing in these FinTech banks even though it is the bank’s own responsibility.
But one thing is sure FinTech impact in banking or FinTech banks can challenge the operation, delivery of products and services, and business perceptions of traditional banks. The only solution is that traditional banks also need to invest in this kind of development in finance.
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In almost all countries, Central Banks have taken the necessary steps for the development of FinTech as it is the essential requirement for the innovation of the finance sector.
Impact on Insurance Companies
The scope for innovation in the insurance sector is very high through the development of technology in recent years. This industry may reflect a rapid change because of the influence of FinTech in the insurance sector.
Fintech development may increase the transactions in the online environment and we may also see a decline in the time taken to settle the claims. It means the claims may settle within 1 or 2 hours.
The development in FinTech will help the customers to overcome all the hindrances which they face online in becoming a part of the insured community. And also it can increase market penetration of insurance services in developing countries.
Fintech may impact the insurance sector from customer advice to settlement and customer acquisition. This evolution will redefine customer experience in the insurance industry irrespective of the area of operation like sales, operation, underwriting etc. It may also put a question mark on many high paid human jobs in the industry.
Impact of FinTech on Payment
Technology helped the payments industry and the same is developing very fast recently. Mobile wallets are emerged and are widely used for payments, enabling the consumers to pay immediately with a few clicks. Biometric and two way authorization methods increased the confidence of customers with regard to security and protection.
Emerging new tech companies to FX and remittance market also a new development noticed as a result of the FinTech revolution.
Popular digital currency “Bitcoin” and its fast development help the payments industry in new and innovative forms.
The growth of Paypal is an example of real-time payment gateways associated with the bank account or credit card.
Impact on Asset Management
Asset Management is managing special accounts and investment funds for clients. The recent developments in FinTech may impact the Asset Management Companies. Here human asset managers and advisors are competing with Robo-Advisors. Asset managers now know the disruption in the industry. Many customers are already started doing business with FinTech companies.
FinTech and Compliance
Strict regulations are applicable to the licensing and operation of banks and financial services companies. These licenses will regulate the FinTech companies also. FinTech companies need to comply with all regulations and rules. These include Know Your Customer (KYC), Anti Money Laundering and Combating Terrorist Funding (AML & CTF) programs.
All the activities of the FinTech companies are required to oversee the concerned authorities in the countries where they operate whether regionally or globally. For example, the Office of Foreign Asset Control(OFAC), Securities and Exchange Commission (SEC).
All these regulations must obey by FinTech Asset Management Companies because of the introduction and wide usage of Robo-Advisors.
The industry required to introduce and develop clear rules and regulation for the compliance for Peer to Peer (P2P) lending companies. The risk of fraud risk is very high in this sector. FinTech companies must implement adequate risk tolerance policies if they wish to move to P2P lending
FinTech companies engaged in payment services should comply with the regional regulation of payment services. These companies must also ensure data confidentiality, security, and privacy.
FinTech and Challenges
The main risk of Fintech is an inherent risk which is technology threat or more precisely cybersecurity threat. This risk may overcome by sophisticated measures of the technology itself. But we cannot predict to what extent they can avoid the cyber attacks and threats, at least they need to reduce the severity. We think the traditional methods used in these areas may not work well.
Compliance with the rules and regulations will also be a challenge in the FinTech industry.
FinTech is in a developing stage. We hope a very bright future is ahead. More personalized services may available in the market by the use of Artificial Intelligence (AI). Banks and other financial institutions may not exist physically as all those services will be made available in mobile or any other devices operatable by voice or a dedicated robot. Security may be tightened with biometric passwords or face recognition methods.
Wishing a Prosperous FinTech Future 😊😊😊