What are the key drivers and challenges
of FinTech adoption in the financial
services industry?
INTRODUCTION
FinTech is a portmanteau of "financial" and "technology". It refers to the use of
technology to deliver financial services in a more efficient and convenient way. FinTech
companies use a variety of technologies, such as artificial intelligence, blockchain, and
Fig.1. Source: https://media.geeksforgeeks.org/
big data, to develop new products and services that can improve the way people manage
their money. It encompasses any technical advancement in the financial industry, such as
retail banking, investing, and even crypto-currencies [Decentralised Finance (DeFi)] that
aims to improve financial literacy and education.
FinTech services are a disruptive innovation that will transform the financial system. The
financial institution makes significant investments. For example, global investment in
FinTech increased dramatically in 2008, reaching around 930 million USD. Not to note
that FinTech investment has more than tripled in five years, reaching 2.97 billion USD in
2013. FinTech introduces new technology that has the ability to cause a paradigm change
in client lifestyles by giving a superior user experience of attaining rapid, seamless,
anytime, and anywhere banking.
Trends In Fintech Services
Fintech services began to emerge in the 1950s, with the introduction of the automated
teller machine (ATM) and credit card processing, followed by electronic stock trading
and e-commerce. Each decade at the period saw the introduction of new technologies,
which some took for granted. Now, the new generation of fintech services is based on
near-universal internet access via internet banking, which has been followed by the
emergence of mobile phone banking, cloud computing, artificial intelligence, machine
learning, and blockchain, which helps to smoothen the banking business operation.
FinTech service adoption has consistently increased, from 16% in 2015, the year
EY's first FinTech Adoption Index was released, to 33% in 2017, to 64% in 2019. Even
non adopters are becoming increasingly aware of FinTech. For example, 96% of
customers worldwide are aware of at least one alternative FinTech service accessible to
assist them transfer money and make payments.
Emerging markets are
leading the way, with
87% adoption rates in
both China and India.
Russia and South
Africa are close
behind, both having
82% adoption.
The adoption rate is
increasing quicker than
expected. The actual
worldwide adoption rate
of 64% in 2019 surpasses
the 52% future adoption
rate anticipated by the
2017 study by 12
percentage points.
FinTech has taken off
globally, becoming the
mainstream in all markets
investigated. Among
industrialized nations, the
Netherlands, the United
Kingdom, and Ireland are at
the forefront of adoption,
reflecting the evolution of
open banking in Europe.
Fig.2. Source: https://assets.ey.com/
Types Of Fintech Services
1. Crowd funding: It is a set of services that enable networks of people to manage the
development of new goods, media, and ideas while earning revenue for charity or venture
capital.
2. Crypto currencies: These are digital or virtual forms of money that use cryptography
for secure transactions and control of new units. They are decentralized and typically
operate on a technology called blockchain, which is a distributed and transparent ledger
that records all transactions across a network of computers.
3. Cloud computing services: These refer to the delivery of various computing
resources, including computing power, storage, databases, networking, software, and
more, over the internet. These services are provided by cloud service providers (CSPs)
and allow individuals, businesses, and organizations to access and utilize computing
resources without the need for on-premises infrastructure. Cloud computing services are
designed to be flexible, scalable, and cost-effective, enabling users to pay for only the
resources they use.
4. Mobile banking: It refers to the use of mobile devices, such as smart phones and
tablets, to conduct various banking and financial transactions remotely. It allows
customers to access their bank accounts, manage finances, and perform banking tasks
without the need to visit a physical bank branch. Mobile banking services are typically
provided by banks and financial institutions through dedicated mobile apps or mobilefriendly websites.
Adoption of Fintech in SMEs
Fintech, or financial technology, is the use of technology to improve and automate
financial services. Fintech companies are developing new and innovative products and
services that are designed to meet the needs of SMEs. SMEs have become substantial
consumers of FinTech internationally, with one in every four respondents claiming to
have utilised services supplied by a FinTech in each of the following main categories:
Banking and payments, financial management, financing, and insurance are all areas of
expertise.
Fig.3. Source: https://assets.ey.com/
This suggests that SMEs have made FinTech products and services an important element
of their financial management. As with the consumer sector, this tendency was especially
noticeable in China, where 61% of those polled agreed.
The most popular FinTech service was in the banking and payments category, with 56%
of customers claiming to have used it. China was once again a major outlier, with 92% of
Chinese SMEs reporting having utilised FinTech banking and payments services.
Key drivers of FinTech adoption in the financial services industry
1. The advancements in digital technologies
The fast development of hardware and software, as well as the increasing convergence of
information and communication technologies during the last two decades, has been
critical to the growth of fintech firms. These advancements enable new business models
and organisational structures to arise and disrupt sectors ranging from tourism and
entertainment to finance.
Furthermore, developing digital technologies such as 5G, the Internet of Things,
blockchain, artificial intelligence, big data, and significant advancements in data storage
and management are opening up new opportunities to change the way the financial sector
operates.
The exponential expansion of digital technology has enabled fintech businesses to supply
financial services more quickly and cost-effectively than traditional banks, while also
providing more comfortable digital banking experiences to their consumers.
With the introduction of digital wallets, mobile banking, and other financial apps, the
financial services business is already changing. Individuals may now use digital wallets
to pay bills, buy real or digital goods, send money to family or friends, pay for parking or
taxis, and create denotations.
2. The Evolving Landscape of Customer Expectations
Customers' expectations for the financial services supplied by the traditional banking
system have shifted as technology has advanced. Customers have grown increasingly
self-sufficient in basic transactions and more demanding of banks' roles in complicated
transactions.
Furthermore, consumers have grown more connected, aware, empowered, and active as a
result of new search and social media technologies. Consumers are increasingly making
purchases online, and digital contact points have become critical in the customer journey,
influencing both online and physical sales. Furthermore, the fintech age has provided
24/7 access to financial services rather than being confined to banking hours.
As some banks throughout the world continue to deliver antiquated, expensive, and timeconsuming financial services, fintech startups are seizing the chance to supply some
important operations of traditional banks while relying on technology and innovation to
gain a competitive edge.
Technology alone is not disruptive; rather, evolving customer behaviour and demand is
the true disruptor. Changing consumer requirements are seen to be at the heart of the
financial services sector's digital revolution.
According to recent study performed in the United Kingdom and Germany, more than
90% of banking clients in the United Kingdom and more than 85% in Germany feel that a
good technological offering is the most significant aspect when picking where to bank.
Customers prefer other characteristics of fintech services, such as convenience, because
most transactions are completed through online platforms rather than visiting a financial
institution. Users may utilise mobile applications to execute various banking services
such as bill payments, checking deposits, account balances, statements, and many more
operations without visiting a bank.
3. The implications of COVID-19
The COVID-19 pandemic struck unexpectedly in a world unprepared for such a
catastrophe, wreaking havoc on the worldwide economy. While worldwide markets have
become used to economic shocks over the last century, the COVID-19 pandemic crisis
was unique in one important way: it was the result of a global health catastrophe that
immediately turned into an economic crisis.
Due to a lack of physical presence in the normal places of business, the COVID-19
epidemic highlighted the necessity to hasten the digitization of many elements of people's
everyday operations. Because of the spread of the corona virus, millions of individuals
worldwide were compelled to work from home.
When their operations were shut down due to the COVID-19 epidemic, several
businesses were compelled to go online. As a result, customers switched to digital
channels to complete their everyday transactions, and e-commerce has grown in
popularity. The COVID-19 pandemic resulted in a massive upgrade of people's digital
knowledge across all age and social categories across the world.
4. Reduced obstacles to market entry
Lower regulation for non-bank financial services was one of the factors that allowed
fintech businesses to enter the financial services sector. Following the 2008 financial
crisis, banks faced greater capital requirements and tougher lending conditions, making it
difficult for small enterprises and people to acquire credit, resulting in an unmet demand
for financial services.
Banks have been busy dealing with laws, while fintech startups have been expanding
their operations by employing technology to give novel financial services to clients at
cheap cost. Furthermore, because they are less constrained by legal limitations and are
ready to take on more risk than regulated banks, fintech businesses may unbundle
financial service offerings using new technology.
Because of the comparatively modest regulatory constraints, fintech businesses were able
to adapt to a changing business and technological environment more easily than banks.
The regulatory environment for innovative financial service providers appears to have
been relaxed, lowering the hurdles to market access for fintech businesses.
Furthermore, developments in technology, software, and cloud infrastructure have
enabled the construction of sophisticated fintech platforms with small teams, allowing
new entrants with fewer resources to compete in this market. As a result, established
financial institutions today compete with incumbent competitors as well as a growing
number of new financial and non-financial entities.
5. Increasing investments in the fintech industry during the previous decade
Following the 2008 financial crisis, financial institutions and technology corporations
appear to be boosting their investments in fintech advances. External investment for
fintech advances has increased rapidly in recent years throughout the world.
According to KPMG study, overall deal value has increased from $51.2 billion in 2014 to
$210.1 billion in 2021. During the same time period, the number of transactions climbed
from 1,628 to 5,684. Global venture capital investments in fintech startups increased
from $1.89 billion in 2010 to $115 billion in 2021. Over the previous decade, increased
investment in fintech businesses has resulted in an increase in the number of these firms
and their activity in the financial services industry.
Customers' increased need for e-commerce and mobile banking platforms that provide a
more user-friendly environment for completing financial transactions is driving the
worldwide fintech business.
Some data related to Key Drives of Fintech in India
1. Awareness of various financial technology items

The majority of responders (71.2%) are well-versed about digital wallets.

The majority of respondents (55.0%) are aware of digital banking.

The majority of responders (60.4%) are well-versed in mobile banking.

The majority of responders (62.2%) are well-versed with mobile payments.

The majority of responders (37.8%) are well-versed in digital lending.
2. Respondents' attitudes regarding fintech goods

The majority of respondents (52.3%) have been utilising fintech for 2-3 years.

The majority of respondents (71.2%) use mobile to access fintech services.

The majority of respondents (40.5%) strongly believe that the rate of use of
fintech products has grown after Covid-19.

The majority (66.7%) of respondents strongly agreed that the most significant
advantage acquired via fintech was speed.

The majority (74.8%) of respondents strongly agreed that the most significant
benefit acquired via fintech was convenience.

The majority (66.7%) of respondents strongly agreed that the most significant
advantage achieved through fintech is ease of access.
3. The respondents' degree of familiarity with various financial technology

The majority (73.0%) of respondents frequently use Google Pay.

The majority of responders (70.3%) always utilise phone pay.

The majority of responders (68.5%) utilise razorpay on sometimes.

The majority of responders (64.0%) always use paytm.

The vast majority of responders (79.3%) never use mobikwik.

The vast majority of responders (92.8%) never use coverfox.

The vast majority of responders (98.2%) never use bankbazaar.

All (100%) of those polled have never used zestmoney.

The majority of responders (83.9%) never utilise early salary.

The majority of respondents (78.4%) have used a digital wallet.

The majority of respondents (83.8%) had used digital banking.

All (100%) of those polled had used mobile banking.
Challenges of FinTech adoption in the financial services industry
1. Data Security
Data security has emerged as a big worry in the Internet world, whether it is related to
mobile banking, payment applications, or Fintech in general. In 2021, there were 1,862
data breaches with an average cost of $4.24 million. This is a new all-time high, raising
even more concerns about financial cybersecurity. Traditional banking systems, as we all
know, rely on security guards, CCTVs, vaults, and massive bulletproof doors to keep
their data safe and secure.
However, when it comes to virtual security, things are not as simple as they appear.
Vulnerabilities are far more subtle and possibly have a greater impact on consumers, as
not only their money but also their personal data is at danger.
2. Regulatory Compliance
One of the difficulties with fintech is that this high-risk business is plagued by
government rules. Companies must comply with several regulations, including the
GDPR, GLBA, Wiretap Act, Money Laundering Control Act, and others.
As these firms become more popular and challenge traditional financial institutions,
regulators have begun to scrutinise their operations to ensure they are in compliance with
laws and regulations. These high regulatory and compliance standards can result in
additional expenses and delays for fintech startups, making it harder for them to compete
with conventional financial institutions.
3. Lack of tech and mobile expertise
Some financial organisations or banks in the fintech industry lack adequate or convenient
mobile banking services. Some banks, however, attempt to duplicate websites, but in this
digital age, no one would prefer a mobile application. Every user desires a simple and
straightforward method of operation.
As a result, a lack of competence in fintech mobile app development services results in
unfriendly apps that do not fully use mobile devices. Apps may not benefit from NFC
chips, geolocation capabilities, fingerprint unlocking, and other features, for example.
4. AI- Integration and data
Fig.2. Source: https://www.techtic.com/
According to Accenture, 82% of US bankers and 79% of worldwide bankers believe AI
will transform the way banks gather data and engage with consumers.
As we all know, big data and artificial intelligence have had an influence on every
organisation. Organisations may gather personal information about consumers, from
social status to financial behaviour, habits, and in-app activity, using big data.
This information is critical for banks, especially when it comes to credit ratings and other
high-risk banking services. AI automates the whole process of detecting fraud, doing risk
analysis, and successfully managing transactions with the use of big data.
5. Market Saturation and competition
Traditional financial institutions, which have adopted comparable technology and
business models to remain competitive, are also fierce competitors for fintech firms. As a
result, it is becoming increasingly difficult for fintech businesses to distinguish
themselves in the competitive fintech sector in order to attract and recruit consumers.
Traditional financial institutions have a large customer base and a well-established brand.
This makes it difficult for fintech companies to acquire new customers. Traditional
financial institutions have access to more capital than fintech companies. This gives them
an advantage in terms of developing new products and services and acquiring new
customers.
Despite these challenges, fintech companies are still growing rapidly. They are able to
attract customers with their innovative products and services, and they are forcing
traditional financial institutions to innovate in order to compete.
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