BAFI3182 – Financial Market

BAFI3182 – Financial Market

  1. Introduction

The rapid advance of financial technology (fintech) in the past decade has played an important role in the financial system, of how products and services are produced, delivered and consumed. By that, fintech recently has being mentioned rapidly, because of its potential disruption to the financial system world.

The goal of this paper is to describe various aspects of fintech, brief through its role to the financial market and wisely demonstrate the associated impact financial system, financial market and globalization.


  1. Literature Review

2.1. Understand the Fintech world

     2.1.1. A brief description of Fintech

Financial technology (Fintech) is the new technology and innovation in sequence to compete with other traditional financial methods to provide financial services. (Tom C., W. Lin 2016). It seems to be the new marriage of financial services and information technology

The development of smartphone usage for investment services, personal financial management, insurance, mobile banking, online payment, asset management… are some examples of financial technology to take financial services close to both consumers and businesses. (Sanicola L, 2017). Fintech companies, including the start-up company and technology & finance company effort to replace or increase the use of financial services provided by existing financial firms. Financial technology provision areas are very wide, it has been used to automate, extend insurance, financial trading and risk management. (Aldrige, I., 2016).


2.2. Fintech impact on financial markets

The fintech companies compete directly with traditional banking and financial institutions. Fintech has day by day replace the human actions, when it handles a variety of banks’ financial activities such as money transfer, deposit a check with just a smartphone, managing investment without any assistant from bankers. (Kagan J, 2020). It could be proved that every transaction is possible to have influenced by a fintech start-up. Technology has pushed the financial systems so strong and the fintech start-ups has bring us more easily life. Cryptocurrencies informational efficiency is growing significantly (Tiwari A., Jana R. K., Roubaud D. & Das D., 2017)


2.2.1 Fintech impact on financial services

Fintech allows financial services and products to develop by using information technology extensively. The Global Findex database (2017) showed an approximate of 1.7 million adults in the world with no access to an account at a financial institution or a mobile money provider. This was an opportunity that entrepreneurs have realized that, with fintech as a medium, they can provide previously expensive financial services to a massive untapped population (Varga 2015). By using financial technology with preexisting systems and services such as mobile banking and e-wallets, financial services will become more affordable due to low operating costs, bigger customer base, and new business models and works with other industries.

Fintech startups caused a disruption in the finance industry as they tried to compete with banks and financial institutions for market share. Existing institutions were compelled to change their strategy and practices that had been applied for decades. According to Accenture (2018), the number of new participants in the market has increased significantly, with 17% of total number of institutions are new and they use Fintech. As a result, traditional institutions were forced to partner with startups and create an offer what is advantageous for both parties. The partnership guaranteed that banks will be constantly updated, fintech startups can expand rapidly, and customers can experience more dynamic financial services.


2.2.2. Fintech with strong impact on banking systems

Fintech, a new term of technology has strongly achieved the financial markets and show a noticeable evolution over the past decade.

Fintech start-ups are competing on the traditional banks, despite the fact that banks are entering to the digital world. These new competitors used hard information from coding to replace traditional knowledge gained from relationships between banks and customers. Frame, Wall (2018) examined that Fintech has stimulated banks to restructure their business models on which they used to be. Fintech startups have been considered as a threat, they are the main reason for bank disruption and competition increase, but that does not mean the statement is true (OECD 2020).

A belief stated that fintech companies and commercial banks should cooperate to strengthen the relationships as banks could take advantage from Fintech companies. (Acar, O., Citak Y. E. 2019). The trend of open banking, which uses application programming interfaces (API) to share data with third-party companies, has driven the competition towards innovation and better customer service, allowing them to choose the right products and services based on their personal needs (CFTE 2019).

In order to make benefits for their customers, banks are developing their system based on internet and mobile application, as nowadays, customers mostly tend to access online rather than offline. Due to the cheap cost, high efficiency, and high convenience of Fintech, small and regional banks tend to use Fintech to balance some of their shortcomings in the competition against larger opponents such as national banks or multinational corporations.

Bank risk-taking performance is a well-studied circumstance, researchers concern it as an important policy issue on the overall of economic financial stability (Saunders, A., Strock, E. & Travlos N.G. 1990).


2.3. Fintech impact on globalization

Financial services, which used to be provided regionally, are now becoming more globally due to the advancement of technology. According to KPMG (2019), in a span of 5 years from 2013 to 2018, number of deals in fintech has almost doubled (from 1132 to 2196), while the capital invested in fintech has approximately multiplied by 10 times (from $18.9 billion to $111.8 billion). This showed a significant increase in the scale of investment activity in fintech.

Even though the fintech has expanded exponentially in scale, there is a lack of talent to recruit for specialist positions, which slows down the process of globalization. Fintech only ranked 16th out of 18 job choices for MBA (Barrett 2018). In the aspect of fintech workforce, UK is leading in the world with 42% of their workforce are overseas.


2.4. Some forecasts on fintech

The Global Fintech Market is expected to raise at a CAGR of around 21% during the forecast period. The market is predictable to witness reformist growth and reach the market value of around $ 305 billion in the next 5 years. (Dublin, 2020). According to Gartner, by the end of 2020, chatbots will interact with customers from 85% banks and corporations, without any management from humans. (Gartner, 2011). Another finding shows that cryptocurrencies’ information efficiency is growing significantly (Tiwari A., Jana R. K., Roubaud D. & Das D., 2017). In 2017, a prediction displayed that the worldwide blockchain in fintech market would grow from 231.63 million USD to 6700.63 million USD by 2023 at a CAGR rate at 75.2% (). In additional to the above predictions, it can be easily see that Fintech is getting to replace the human actions and 2030, there might be 2 billions people will have digital bank account, a significant deduction of visits to banks for transactions, 50% of items are managed by robots. Hence, Fintech in the future will spot most of human actions, and become one the important part in financial systems. (Lim, R. 2019)


  1. Conclusion and Limitation

Fintech’s diverse applications affect almost all areas of the financial industry. The impact of Fintech creates once again affirms the importance of the new technology platform. In the race of the banking and finance industry, Fintech technology is an unignoreable factor.



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