The Efficiency of Fintech in the transformation of Bank Payment Services

The globalization of the world economy has radically changed the development processes of the financial market in general and commercial banks in particular, giving them an innovative focus. As the world becomes extremely global the necessity for cross-border payments grows. The pace of changes accelerates with the tendency to speed, convenience, and cheapness bringing completely new and revolutionary services into the scene. The demand for innovations drives the changes and now the main question that arises is whether the traditional world payment messaging network infrastructure is ready enough to adapt and facilitate the expansion of such innovations in providing payments. 

To answer this question a bit glance into the history would clear out the points of intersection between fintech and messaging networks.

Fintech itself bringing revolutionary changes in the way of organizing payment processes is not a new term as its first mention dates back to 1866 when the first transatlantic cable was laid with the acceleration of devices like the telegraph and the railroad’s development and the first financial information exchange had been possible. Then during the 20th century, the credit card brought the first steps for a cashless payment system which led to the first ATM by Barclays, and this era is called Fintech 2.0. However, the most prominent moment of the payment systems development happened with the transition from analog technology to digital when SWIFT was created in 1976 introducing revolutionary technology. In the first decade of the 21st century, the world entered the Fintech 3.0 era with the full digitalization of technologies when digital technologies became prevailing over traditional banking communication. Especially in the 2008 crisis fueled this shift and now we have startups that offer convenient fast and at-hand technologies in comparison to traditional money transfers services. 

As we see Fintech and traditional payment systems are not competitors in cross-border payments provision, on the contrary, Fintech provides an opportunity to enhance the quality of payment services due to its high technology capabilities. 

Let’s take an example. SWIFT is a worldwide financial messaging system that enables financial institutions around the world to send and receive information about money transactions. 

SWIFT has preserved its place as an exclusive messaging protocol provider for a quite long time and predicted the emergence of aerial messaging networks such as SEPA in the Eurozone, CIPS in China, SPFS in Russia, and TIPANET in Europe. 

All systems have a similar structure - all systems are based on the interaction with the Central bank of the respective countries and connecting thousands of banks in its network. 

Despite the differences, all payment messaging networks share the same goal – to provide seamless, secure, and reliable money transfers to people and businesses, and to enhance the integrity of the increasingly dynamic system of payments in the global area.  And here is the main advantage Fintech presents - the simplification of the internal structure due to which Fintech has the opportunity to integrate more effectively with local banks. 

And it’s where the global players concede a point to Fintech. The regulation compliance processes combined with traditional technology adds lead to overpriced and disadvantageous transaction costs. As an outcome, we get the same service secured in collaboration with Fintech at a more flexible fee and speed.

Agile and scalable Fintech structure enables to cut down the bureaucracy challenges and can be applied to solve regulatory and compliance requirements more efficiently. Moreover, Financial institutions have long felt the pressure to both modernize their infrastructure and respond to changing customer demands and expectations. Fintech accelerates the activity of Financial institutions for making similar decisions but less time-consuming and more cost-effective. 

From this point of view, Fintech is a sort of coworking space that brings together Financial institutes and Fintech companies to result in fast and flexible service provision.

Fintech as a change driver for banking services

Fintech is an overarching term for technologies to rationalize, digitalize, and optimize traditional financial services filling in the gap in traditional payment systems. Here is the main idea of Fintech - it doesn’t disrupt the services secured by traditional methods. On the contrary, it facilitates services provided by payment systems as its superstructural nature enables more transparent and accurate transactions due to vast technology opportunities. 

It is worth pointing out that it’s due to its superstructure that Fintech, having acquired one expensive solution, delivers many services at a lower price, for which we get cheaper, more affordable, and unified services.

Historically banks have been considered to be the backbone of payment transactions, however, nowadays traditional banking systems noticeably give way to Fintech in terms of the high cost of conducting transactions because of system peculiarities. 

Fintech companies strive to organize the payment process not only from the point of view of cheapness and profitability but also from the point of view of comfort and unification. Especially taking into account that traditional banking services happen to have shortcomings in the new technology sphere the idea of Fintech integrating with banks we get a solution where a bank provides Fintech services through cooperation with a Fintech company. Thus the “Fintegration” of banking services is significant for that while banking services offer real-time services on a regular basis Fintech in its turn offers innovation and disruptive technology. 

For example, there are still unbanked zones where access to brick-and-mortar financial institutions is still a challenge. In this case, Fintech can be a door to banking services for unserviced zones and connect banks and customers enabling them to implement their payments utilizing digital payments such as digital wallets, cashless payments, or online banking. For example, due to an initiative by the World Food Programme Syrian refugees in Jordan can transact cashless payments to buy necessary food for their families. 

As we see regions where access to mobile phones and the internet prevails over the opportunities to open bank accounts, become testing grounds for mobile-based payment schemes having a great impact on the acceleration of digital payments.

To change that perception and meet the growing demand for real-time, immediate, and convenient payments, financial institutions need not only be technologically prepared but also their whole structure should be reformed.

Banks are always more localized being limited from the point of view of organizing international business. Fintech, on the contrary, with its focus on integration and the international market, can create a product that is relevant not only to an individual but also to the banking business.

Traditional payment chains are reduced by disruptive Fintech structure since Fintech actively integrates with settlement systems. As opposed to the traditional bank system that is dependent on the Central bank, Fintech directly cooperates with local banks.

Thus, direct integration with a partner and its high-tech capabilities allows Fintech to offer payment services at a more affordable price compared to global players, strengthen processes, and drive efficiency. 

However, all international systems split services, which is why the client is faced with the problem of choosing a card, a method of sending money. Fintech, in turn, facilitates this task and unifies it. Fintech due to its high-tech technical capabilities can improve services to banks and due to this alliance, the banking sector may start offering additional user-centric services, for example, banking applications, direct online money transfers, based on PayPal or Apple Pay models.  

The main function of Fintech is to think for the client, how to do it, the client expresses a desire, and then the implementation is up to Fintech . Moreover, the service must be provided in such a way that the client does not have to leave the comfort of his home in search of points for funds transferring, for example. The most important thing is that we can get a unified and full-fledged banking service in one technology or application, and we, as consumers, free up time for other purposes, leaving these tasks to Fintech.

The advantage of Fintech in payments is flexible, fast, and cheap transactions - all this is achieved by means of high technologies, coupled with the service of international payment systems. After all, technology has always been an enabler and change driver of financial institutions' success.

Technological innovation can dramatically transform the financial services industry and benefit society. It can replace the outdated systems of individual banks, improve processes, increase efficiency, and strengthen control. They can also provide opportunities for creating new products and services that benefit customers.