Personal finance has undergone a revolutionary transformation that reshaped the landscape of the banking industry over the past decade. Traditional banks used to hold a dominant position in the financial sector which had to adapt and evolve to stay in the game. This article is about the evolution of personal finance over the past few years and its impact on traditional banking policies. It also explores how traditional banks are responding to this revolution.
Traditional Banking- The Foundation
For centuries, traditional banking institutions have been the cornerstone of personal finance. Banks offered a safe space to deposit money and jewelry, access loans, and manage financial transactions. However, traditional banking came with limitations such as limited accessibility, high operational costs, and sometimes slow transaction processes.
Key Statistics
According to the World Bank, only 51% of adults globally had an account had an account at a formal financial institution around 2011.
Talking about India’s penetration around 2011, this figure was even lower with just 35% of adults having access to a bank account.
The Rise of Fintech
Fintech or financial technology refers to the integration of technology into offerings by financial services companies to improve their use and delivery to consumers. The evolution of personal finance has democratized financial services, making them more efficient, accessible, and user-friendly.
The fintech revolution has changed the way people spend money by making financial services more accessible and convenient for consumers and businesses. Peer-to-peer lending options, several mobile apps, and digital wallets have simplified financial transactions. In turn, it reduced the need to visit physical bank branches. However, the rise of fintech has kind of started competition from fintech startups that offer innovative and user-friendly alternatives.
Milestones in Fintech
- Early 2000s- Online baking and payment options were introduced.
- 2009- The introduction of Bitcoin that paved the way for cryptocurrencies.
- 2011- Payment services like Apple Pay and Google Wallet were introduced.
- 2015- The rise of peer-to-peer lending platforms and robo-advisors like Faircent which was introduced in 2013.
Impact of Fintech on Traditional Banking
Let us explore some of the key areas where traditional banks are feeling the impact and how they are adapting.
Customer-centric approach
We have seen traditional banks operating with a customer-centric approach, offering a pre-defined set of financial products and services. On the other hand, financial companies use the same approach differently. They tailor their offerings to meet the specific needs and preferences of their users.
Digital Transformation
Since fintech is taking financial services by storm, many traditional institutions are investing heavily in upgrading their digital infrastructure to offer online and mobile banking services. This is to compete against fintech. This shift also includes other things like paperless account opening, real-time transactions, and digital customer support.
Regulatory Compliance
The rise and adaptation of fintech has brought about new regulatory challenges for traditional banks. Fintech companies keep on introducing innovative financial products and services, regulators are bound to ensure customer protection and maintain the stability of the financial system. Banks are revising their policies to meet regulatory requirements like KYC and AML.
Risk Management
We cannot deny the fact that traditional banks have well-established risk management policies, however, fintech comes with new and unique risks. For example, the rapid expansion of online lending platforms has raised a lot of concerns about fraud detection and even credit card assessment. This is why banks keep on telling everyone that we don’t ask for any personal details and don’t give them even if someone asks you. While we have seen the evolution of personal finance in so many different sectors, it also brings some challenges with itself.
Financial Inclusion
This is one of the most positive impacts of fintech on traditional banking. Fintech has the potential to reach unbanked and underbanked populations. This allows them to access financial services that were previously out of reach. This includes offering technology to those excluded by conventional banking.
Global Fintech Growth
We all are aware of the fact that the fintech revolution is not limited to India; it is a global phenomenon reshaping personal finance worldwide.
Major Key Trends
- Cryptocurrencies and Blockchain– With over 13,000 cryptocurrencies in existence, traditional banking systems are being transformed by blockchain technology.
- Insurtech- Insurtech is made by combining two words; insurance and technology which refers to using innovative technology. Innovations in this sector are continuously enhancing customer experience.
- Regtech- Regtech is the management of regulatory processes through technology. It is within the financial industry and helps financial institutions comply with regulations more efficiently.
The global fintech market was valued at USD 187.1 billion in 2023 and is expected to be worth USD 340.10 billion by the end of 2024. This value is also expected to reach USD 608.35 billion by 2029 growing at a CAGR of greater than 14% during this period(2024-2029).
Additionally, the global mobile payment market size was valued at USD 2.98 trillion in 2023 and is expected to be 27.81 trillion by 2032 exhibiting a CAGR of 28.1% during the forecast period.
Cryptocurrency Adoption- It is estimated that around 97.5 million people which accounts for approximately 7.1% of India’s total population currently own cryptocurrency.
The Impact of Fintech
Fintech impacts personal finance in several ways. While there are many benefits of the same, it also comes with certain challenges.
Benefits
- Accessibility
One of the greatest advantages of fintech is that it offers access to previously unbanked and underbanked populations.
- Efficiency
Since every process and transaction is digital, it saves a lot of time and also reduces costs.
- Customization
Fintech solutions offer personalized financial advice and products.
Challenges
- Regulatory Compliance
One of the significant challenges for fintech companies is ensuring compliance with evolving regulations.
- Cybersecurity
Cyber-attacks and data breaches are connected with the rise of digital finance.
- Financial Knowledge
Making people understand the new financial technologies is still a task and is challenging.
Our Final Words
In India and other parts of the world, fintech is bridging gaps, driving financial inclusions, and fostering information. Technology is changing its face with each passing day and thus, the future looks promising with endless possibilities for further transformation and growth. This article was about the evolution of personal finance and how it has changed its face in the past few years.