It’s hard to read a newspaper and not see any Fintech company being mentioned. The Fintech revolution has taken center stage with investors queuing up to get some action.If you were to look around for the most recent funding provided by Silicon Valley to startups, you would notice that Fintech is the unequivocal favorite! It doesn’t matter whether the funds invest in concept stage companies or companies that are already generating positive cash flow everybody seems to have a hand in the fin tech pie.

Analysts have been repeatedly calling fintech the technology of the future. In this article, we will understand the beginning of fin tech and how it is likely to impact us in the near future.

What is Fintech ?

Fintech is the use of technology to improve the financial services that have been traditionally provided by banks. The field is quite vast and includes a lot of concepts that the reader may have heard about. Fintech includes technologies’ like block chain, peer to peer lending, voice recognition, digipay and so on.

Technology is transforming every sector in the economy and banking is no exception. Thanks to technology, the bankers of tomorrow are going to be very different than the bankers of today. We can already see this happening in the retail sector. The employees of Amazon are very different from the employees of Wal-Mart.

Different in the sense that they will have a very different background and skill set as compared to the bankers that we know and see today. The banking profession is rapidly evolving, and Fintech is just speeding up the process.

Why is Fintech Revolution Happening Now ?

Why now? This is the question that comes to mind when we think of the Fintech revolution. Technology is no new thing! Then why is that suddenly, there are an enormous number of startups which think that they can provide tremendous customer value by providing products and services in this field.

Well, there is a story to it. Till 2008, most banks in the world had huge budgets earmarked for technology. These banks would stay abreast with the latest technology. However, in the year 2008, banks faced an existential crisis. This meant that they had other priorities to deal with. There were regulatory concerns and mergers and acquisitions were happening at an increasing pace in the market. In such a scenario, technology was not high on the priority list of any bank. As such, technology took a back seat during the years that followed. Just because the banks were not interested in investing in technology did not mean that technology was no longer important!

During the same years, technology started growing at an alarming rate. Since it was not being absorbed by the banks themselves, many outside non-banking companies saw a huge gap in the marketplace. This is the gap that these companies are trying to serve with the help of massive funding from the venture capitalists.

One would be surprised to learn some of the players that have heavily invested in the fintech space.

• Consider the fact that Facebook has already acquired a regulatory license to use its Messenger app to transfer money.

• Similarly, Amazon has used its platform to disburse student loans and was very successful

• Also, Alibaba made a huge, money market mutual fund by collecting a few hundred dollars from many of its shoppers.

The initial results of a lot of these experiments have been encouraging.

Why are Traditional Banks Worried ?

• Confidence Crisis: The banking sector is facing a public relations problem. Most banks are viewed as being predatory. On the other hand, technology companies are viewed as being friendly. People trust them enough to share their family photos and intimate details. It is likely that they will not mind transacting financially on these websites as well. The negative image that banks have versus the trust that people place on these social networking sites is getting the banks increasingly worried.

• Pick & Choose: Traditional banks have to provide the entire spectrum of banking services. To be able to provide the profitable services, the law mandates that they provide the unprofitable services too. However, that is not the case with fintech companies. They do not face the same level of scrutiny and regulation as the banks do. As a result, their compliance costs are also significantly lower than that of banks. All these factors combined ensure that Fintech companies are more profitable than banks. Investors are therefore more inclined in putting their money towards Fintech. This has got the banks extremely worried.

• New Banking Model: Banks are skeptical that these new age Fintech companies will own the front-end interface and the consumer touch points. Banking services will become generic, and there will be no name brand banks. The banks will have no option but to provide the back-end services that will support these front end businesses.

To sum it up, Fintech started from the inability and unwillingness of banks to use the best technological advancements in their business. However, now these companies have gained traction. The lack of regulation is fuelling to the growth of these companies and has the entire banking sector worried.