FinTech: Reshaping the future of financial industry
OVER the last decade, the financial industry has been strongly influenced by digitalisation that has led to the emergence of ‘financial technology’ (FinTech).
The term ‘FinTech’ refers to the synergy between finance and technology, which is used to improve and automate the delivery of financial services to help companies, business owners, and consumers be er manage their financial operations.
In simple words, any company that provides financial services through so ware or other technology, which includes anything from mobile payment apps to cryptocurrency, can be considered a FinTech company.
FinTech is not a new industry – it is just one that has evolved very quickly as more technology entrepreneurs enter the industry and transform it according to societal needs.
Technology has always been part of the financial world, whether it was the introduction of credit cards in the 1950s or ATMs in the 1960s.
But the real game-changer for the industry was the coinciding of the financial crash of 2008 with an unprecedented surge of technological advancements.
A er the global financial crisis, the financial industry started suffering from a poor reputation.
A survey conducted by the World Economic Forum concluded that only 28 per cent of the Millennial and Gen Z generations trusted their banks to be fair and honest, which showed that the established traditional financial service companies were no longer successful in providing relevant products to their customers.
Another study by McKinsey & Company revealed a gradual reduction in investors’ confidence in the banks as a result of slowing growth in revenues in the market.
In addition to the reputational issue, the slowness of processes along with high commissions charged prompted many to seek alternative financial services and products.
FinTech emerged to overcome all these deficiencies by providing new products or services, new production processes and new organisational forms, which gave the financial service providers the potential to change their competitive advantages.
For example, FinTech companies now have superior technologies for the screening of borrowers; thus, lowering information asymmetries. Big tech firms have access to a wide range of customer data, which may be used to improve risk assessments and the screening of borrowers.
Additionally, big tech firms can achieve economies of scale through network effects.
Other than that, FinTech can help to reduce the cost of providing services, making it possible to reach more people, and reducing the need for face-to-face interactions essential for keeping up economic activity during the current pandemic.
In sum, the distinguishing characteristic of this development is the appearance of more choices, be er products, and lower prices for consumers all around the world via the interplay between the finance and technology sectors.
Such a financial revolution is turning the financial services industry on its head and poses challenges to traditional financial service providers.
Therefore, financial institutions are now predisposed to adapt to the
FinTech wave – or face being irrelevant, or even disappear altogether.
This adaptation ranges from digitising existing products and services to a complete digital transformation of processes, and the introduction of new products and services.
Many financial institutions, including Citibank and Goldman Sachs, have accelerator programmes for FinTech, whilst HSBC has invested in FinTech firms that offer solutions across personal finance, wealth management, lending, payments, se lement blockchain, data analytics, and other regulatory technology.
In the next few years, we will see more financial institutions riding the FinTech trend, making financial services be er for consumers.
However, one crucial question arises here — how will such revolutionary change impact the future of work in the financial industry?
As digital transformation changes the way companies do business, the job skills needed in the workplace are changing too. Automation and robots will do most of the repetitive work, while new roles are emerging in areas such as advising and consulting.
Some experts argue that all companies, including banks, would increasingly move towards ‘agile’ working, where teams are formed on a shortterm basis to solve a problem or develop a new product or solution.
Therefore, the traditional career path of being hired and automatically moving up through an organisation may no longer exist.
In this new world of financial service jobs, people with digital skills are heading straight to the top of the hiring pile.
In the banking industry, some bank leaders consider the banker of the future ‘to be one who is flexible, creative, entrepreneurial, customercentric, cooperative, and a lifelong learner’.
Currently, almost 376,000 people are employed in the financial service industry in Malaysia, but that is unlikely to remain the case in the next decade under the current FinTech revolution.
Therefore, our graduates need to improve their competitive edge by striving to build the necessary skills at a young age. Schools and universities also need to play their role by offering courses that are in tune with future financial industry needs.
This will develop the next generation of financial professionals by equipping them with the necessary expertise that is needed to propel the industry’s digital transformation.
Dr Badeeb is a senior lecturer and head of the Accounting, Finance and Economics Department at Curtin Malaysia’s Faculty of Business. His research interests are in financial development, international finance, and energy and resources economics. He has more than 15 years of industrial and academic research experience, and has published papers in several high-ranking academic journals. In addition, he has won several research and teaching excellence awards such as the prestigious Sanggar Sanjung Research Award from Universiti Sains Malaysia and the 2020 Faculty of Business and Law, Teaching Excellence award from Curtin University, Australia.