The evolution and revamping of the banking industry has been growing rapidly with fintech, as venture capital in this sector was up to $12 billion from $4 billion the year before for the years 2014 and 2013, respectively. The reason for this high growth seems to be due to fintech’s ability offer similar services as traditional banks while relying on a peer-to-peer platform grounded on specialized software. Lower costs and easier access, allow users to get loans, send cash overseas, and manage their wealth. In addition, a changing landscape with the relevance of new technologies such as smartphones and cheap data processing are allowing fintech companies to have a median to access such a large market and subsequently, disrupt it. The millennial generation will also force traditional banks to change their business model, as they are accustomed to web-based technology and are trusting of the new financial innovations. The three equal parts to which banks make money through interest (both borrowing and saving), charging for making payments, and a collection of fees (overdrafts, brokering investments, etc.) are all challenged by fintech companies. Even though fintech’s top companies handle billions in trade where traditional banks handle trillions, fintech has a lot of room to grow. There was a point where banks used to view fintech companies as unable to penetrate they market, but now there is cause for concern with their business model being threatened.
Link to article:
http://www.economist.com/news/special-report/21650290-financial-technology-will-make-banks-more-vulnerable-and-less-profitable-it