The financial services industry has undergone a significant transformation in the past few years, driven by the rapid growth of fintech. Fintech has revolutionized how we bank, invest, and manage our finances.
In this article, we will explore the connection between banking and fintech, how fintech is reshaping financial consulting, and the top challenges facing the financial Industry today. Additionally, we will delve into the main areas of financial services, recent trends, and the future of the Industry in 2023. You can also check our Infographic dedicated to Fintech trends of 2022-2023.
- According to a report by McKinsey, by 2023, the global banking industry is projected to face revenue losses of up to $400 billion due to the impact of fintech disruption.
- A recent survey by PwC found that 81% of financial services CEOs consider cyber threats the most considerable risk to their businesses, and 94% plan to increase their investment in cybersecurity in the next 12 months.
- The global AI in the fintech market is expected to grow from $1.5 billion in 2020 to $22.6 billion by 2026, at a CAGR of 45.2% during the forecast period (2021-2026), according to a report by MarketsandMarkets.
The Connection between Banking and Fintech
As technology advances, how we bank and manage our finances is evolving. One of the most significant changes we have seen in recent years is the rise of financial technology or fintech.
What is Fintech?
Fintech is a term used to describe innovative technology that aims to improve and automate financial services. Fintech companies leverage technology to provide better financial products and services than traditional financial institutions. They offer digital solutions that are more convenient, efficient, and affordable than conventional financial services.
What is Finance?
Finance is managing money, including investments, banking, and budgeting. Finance involves the study of financial systems, institutions, and markets and how they operate. This is crucial for businesses, individuals, and governments to make informed decisions about spending, saving, and investing.
Examples of Fintech in Banking
Fintech has disrupted traditional banking by offering innovative solutions to longstanding problems. Some examples of fintech in banking include:
- Mobile Banking Apps: Mobile banking apps allow users to access their bank accounts, transfer funds, pay bills, and deposit checks from their smartphones. This convenience has made banking more straightforward and accessible for many people.
- Digital Wallets: Digital wallets enable users to store their payment information and purchase using mobile devices digitally. Digital wallets are secure and convenient, eliminating the need for cash or physical credit cards.
- Robo-Advisors: Robo-advisors use algorithms to provide investment advice and manage client portfolios. They offer lower fees than traditional financial advisors and provide users an easy way to invest their money.
How is Fintech Reshaping Financial Consulting?
The financial services industry has undergone a significant transformation in the past few years, driven by the rapid growth of fintech.
Financial consulting involves advising individuals and businesses on financial matters, such as investment strategies, risk management, and financial planning. With the rise of fintech, traditional financial consulting is being reshaped in many ways. This traditionally involved face-to-face meetings with financial advisors, who would provide personalized advice based on their client’s financial goals and risk tolerance. Nowadays, fintech advisors are becoming people from the IT industry with the deep expertise and knowledge in this topic, and at FSSP we are helping entrepreneurs to create a strategy, to build appropriate plans for the realization of their ideas. We can help with certifications, APIs, PCI DSS, and in many more aspects.
Traditional vs. Fintech Financial Consulting
According to a report by Deloitte, the use of robo-advisory services (a type of fintech financial consulting) has grown significantly in recent years, with assets under management by robo-advisors expected to reach $16 trillion by 2025. This growth is driven by the convenience and accessibility of these services and their lower costs compared to traditional financial consulting services.
Traditional financial consulting typically involves in-person meetings with a financial advisor, who assesses the client’s financial situation and recommends investment strategies or other financial products.
On the other hand, fintech financial consulting services leverage technology to offer automated, algorithm-driven advice to clients. These services often rely on artificial intelligence and machine learning to analyze client data and provide customized recommendations for investment portfolios or financial products.
Benefits and Drawbacks of Fintech Financial Consulting
Fintech has also transformed how financial consulting is provided, offering benefits and drawbacks. Here are some of the advantages and disadvantages of fintech financial consulting:
- Lower Costs: Fintech financial consulting can be significantly cheaper than traditional financial consulting, with robo-advisors charging lower fees than human advisors.
- Increased Accessibility: Fintech financial consulting can be more accessible to people who may not have access to traditional financial consulting services, such as those living in rural areas or with lower incomes.
- Improved Efficiency: Fintech financial consulting can be more efficient, with digital tools and algorithms providing faster and more accurate financial advice.
- Lack of Human Interaction: Fintech financial consulting lacks the human touch of traditional financial consulting, which some customers may prefer.
- Potential for Errors: Fintech consulting relies on algorithms and digital tools, which may not always provide accurate advice or consider all relevant factors.
- Limited Customization: These may not offer the same level of customization and personalization as traditional financial consulting, which may not meet the needs and preferences of some customers.
While fintech has transformed the Industry in many ways, it is essential to consider the advantages and disadvantages of fintech financial consulting before deciding whether it is the right choice for your needs.
Challenges Facing the Financial Industry Today
The Financial Industry has always been subject to various challenges, and today is no different. Here are some common challenges the financial Industry facing today, including:
- Regulatory Compliance: The Financial Industry is heavily regulated, and compliance with regulations is essential to avoid penalties and maintain consumer trust. However, compliance can be costly and time-consuming, particularly for small financial institutions.
- Cybersecurity Threats: Cybersecurity threats can come in the form of data breaches, phishing scams, or ransomware attacks and can cause significant financial and reputational damage to financial institutions.
- Competition from Fintech Startups: Fintech startups are disrupting the financial Industry. These startups can quickly scale up their operations, leveraging technology to provide consumers with better and more affordable services.
5 Main Areas of Financial Services:
Here’s a breakdown of the five main areas of financial services:
- : There were over 4,400 commercial banks in the US in 2020, with assets totaling over $22 trillion. Banks provide various services such as savings and checking accounts, loans, mortgages, and credit cards.
- Investment and Wealth Management: Investment and wealth management services help individuals and businesses invest and manage their money. These services include financial planning, investment advice, retirement planning, and portfolio management.
- Insurance: According to a report by Mordor Intelligence, the global insurance industry is projected to grow at a CAGR of 6.7% from 2021 to 2026. Insurance services provide financial protection to individuals and businesses against unforeseen events.
- Payment and Transaction Services: Payment and transaction services are essential for financial transactions. These services include debit and credit cards, online payments, wire transfers, and mobile payments.
- Financial Consulting: According to a report by IBISWorld, the US financial planning and advice industry had a market size of $63.7 billion in 2021. Financial consulting services provide advice and guidance on financial matters such as budgeting, taxes, and investments.
These services are expected to grow and evolve in the coming years, driven by technological advancements and changing consumer preferences.
Trends in Financial Services Industry in 2023
Looking ahead to 2023, we expect continued growth and development in several key areas.
- Mobile Banking and Payments: With more people using their smartphones and tablets to manage their finances, financial institutions invest heavily in mobile apps and other digital platforms to provide a seamless user experience.
- Digital Lending: Digital lending has disrupted traditional lending by providing borrowers with quick and convenient access to loans. This trend will continue in 2023, with more financial institutions offering digital lending services to compete with fintech startups.
- AI and Machine Learning: AI and machine learning are transforming the financial services industry by providing insights into customer behavior, identifying patterns and trends, and automating routine tasks. In 2023, we can expect to see further advancements in these technologies, including the increased use of chatbots and voice assistants for customer service.
- Blockchain Technology: Blockchain technology has the potential to revolutionize the financial services industry by providing secure, transparent, and decentralized platforms for transactions.
- Cybersecurity: Financial institutions must invest in robust security measures to protect their customers’ data and prevent cyber attacks.
The rise of fintech has transformed the financial services industry, including how financial consulting is offered. While traditional financial consulting still has its place, fintech has opened up new opportunities for more personalized and efficient financial services. As we move forward, financial institutions must adapt to these changes to remain competitive in a rapidly evolving landscape. If you need any help in terms of your fintech solution/application/idea at any stage of its development, you can be sure that we can help with that. Check our case studies on building digital payment systems, online banking, neobanks from scratch and talk to our specialist to know more.