This assignment mainly revolves around the theme concerning the formulation of knowledge on the current affairs relating to the fact of disruption by Fintech in the financial sector market of payments and remittances. The first portion of the study involves a detailed insight in relation to the identification of the key contributors and important publication which are associated with this field of study. Moreover, the second half of the study will deal with the analysis of regulatory implications that are mainly arising from the various findings of the literature review. Thus, after identifying the current state of development in the portion of the literature review, the regulatory implications of the disruptions are identified and alongside critical analysis of the alternative regulatory responses in the aspects of alternative regulatory responses are also undertaken. Alongside, market efficiency and issues relating to the financial prospects are also covered in this particular research study.
Part A- Literature Review
The fintech revolution has acted as a major driver in the current market scenario. One such important aspect that has played a major role in fintech revolution are noticed in the field of online payments and remittances. However, the fintech technology seeks to automate and improve the act of delivery and usage of the financial services in the short run as well as in the long run scenario.Of late, there has been experienced certain disruptive effects caused by fintech caused in the payments and settlement solution which would be discussed thoroughly in the portion of the literature review.
Role of fintech in disrupting the different sectors of the financial market
Fintech has created a greater buzz in the field of finance and banking as it is the most vital technology that is considered in proper integration of the varied functions of financial services. Hereby, the paper-based work is mostly replaced with that of the usage of the newer level of technology in order to upgrade the various functions of the back office. The management of customer database and proper execution of financial transactions have gained an upper hand in the longer scenario. The development and usage of cryptocurrency of bitcoin have also been a major aspect of fintech in this modern world scenario which has, in turn, lead to greater technological innovation and improvisation. The secure, robust and scalable automated transaction that are mainly possessed by fintech have integrated seamlessly with the core financial institutions, banking and central clearing systems that are mainly hosted by the central banks and at the same time are fully customised in meeting the different clearing and payment guidelines for the financial markets (Leng et al. 2018).
Drivers of the fintech revolution
The introduction of smartphones has helped the customers to have easy interaction/access with that of the banking accounts. Recently, the mobile apps have grown largely in the recent times and at the same time have developed long term sophistication. Thus, with the growth of various sophisticated features of the mobile apps, the demand of the customers has increased on a widespread scale. Thus, the activity of digitalisation has transformed the nature of banking on a greater run thus pertaining to the needs of the people in the long run scenario of the business needs. Moreover, the introduction of smartphone have lead to another development such as the varied explosion concerning the introduction of online payment app, which have integrated with the different banking accounts and have allowed online shopping on a seamless basis, transfer of investment and at the same time promoting the various aspects of mobile to mobile payments. Hence, the online platfoms have experienced a greater rise and the use of online applications have lead to the need for the robust and faster protocols of security that would help in the process of safeguarging of the customer data. The varied application of fintech has lead to reduction of the cyber attacks and malware practices (Boskov, 2018).
Disruption of fintech in the world of finance concerning the sector of payments and remittences
Some of the important procedures through which fintech has been changing the widescale game for payments and remittances are analysed as under:
In the wake of the industrial revolution, the major convergence of the cybernatic/virtual and the physical worlds and along with that, with the invention of the digital technologies have paved new paths of innovation which have also disrupted the traditional model of the business processes. The global arena has been prone to various level of technological disruptions and it has unfolded to a greater aspect. The complexity of the fintech technology has disrupted each and every sector especially the sector of online bank payments and remittances (Salampasis and Mention, 2017).
Omnichannel system of online payment and remittances
The various implications of online mobile banking and the online application of fintech has mainly assessed the definite branch specific activities that are related with he different digital channels concerning that of mobile, social and online activities (Book, 2017). The adaptation of the onmi channel banking activities has been playing a higher role in reducing the size of the omni channel banking activities which has helped in reduction of the size of the branch offices.
Usage of biometrics for ensuring stronger security
A wide range of speculation has been going on in case of finding different methods to use the different system of biometrics that imply vocal patterns, thumbprints and certain facial recognition in order to strengthen the level of authentication for transactions. Thus, the process of enabling quicker authentication has lead to enhancing a higher degree of security system.
Chatbots that are used mainly for enabling higher standard of customer service
The software chatbot have also created a major revolution among the human minds.This has become a popular aspect for the different banks and financial institutions which has also improved the different levels of customer satisfaction as the customers has better streamline the various customer facing interactions in a sound maner that mainly leads to handling of queries and at the same time directing the customers to the various relevant departments.Hence, the various system of mobility, online payment apps along with the smartphones that is mainly coupled with the various demand for enabling proper and personalised experiences of banking that have given newer rise as far as the adoptation of financial technology and financial service industry are taken into consideration. Nowadays, fintech has enabled chatbox and algorithms of machine learning that have played a greater role in the matters relating todetection of fraud chain analytics (Aaron et al. 2017). Furthermore, the various case of online payments and remitttances are mainly upstaged by the newer fintech palyers that can offer he customers various imperative aspects in order formulate strategic investments in the various innovative technologies. This can help in a greater level of upgradation of the business operations and at the same time delivering a gretare degree of seamless services for the purpose of higher standard of customer service as well as customer retention.
Figure 1 : Global Investment in Fintech
(Source: Book, 2017)
Digitalisation of the fintech technology and its disruption in the field of online payments and remittances
The subject matter of digital disruption has been gaining a huge attention in the global arena. Fintechs has emerged as a new player which has been challenging the incumbent financial institutions and banking app as well. One most important dimension of the financial sector concerning that of payments and remittances have given rise to various level of implications regarding the digital disruptions in the longer scenario of the study. The technology fintech has been always on the radar for numerous reasons claiming the fact that Fintech has been a major disruptor for the domain of online payments and remittances and other related financial transactions all over the world. Specifically, in the arena of B2B investment purpose of fintech, the B2B market of global payment has also experienced a significant level of growth.
The financial technology revolution of fintech has driven significant changes as far as the financial service process is taken into consideration. In remittances and online payments, digital wallets, mobile bank along with the peer to peer payments have provided a wide range of options to conduct the different transactions of business free of any type of fees, developing excessive time for the purpose of bank reconciliation of the funds and at the same time implementing processing of payment that are cost effective in nature (Ryu, 2018).
In accordance to the views that are put forward by the renowned publishers in this field of study, it is ascertained that fintech is promoting lesser level of disruption and at the same time creating a much healthier competition in this particular industry concerning that of financial and online and banking payment app. Some of the various fintech disruptors that has playing a greater role in this scenario of study are Stripe, Amazon and Paypal, which have laid a solid foundation for the various startup companies when it comes to development of the fintech solutions.
For instance, Paypal happens to be the first e-commerce company to offer a particular way from the small business enterprise for accepting online payments without discovering any types of payment procedurefor the purpose of accepting the debit and the credit cards. On the other, Amazon has provided an easier way for the purpose of initiating proper online retail payments for the stores. Stripe has also initiated the various idea of proper acceptance of payments on the basis of the smartphone reader such as the smaller units of business can have greater acceptance of credit card payments. Apart from that, there are various other aspects of fintech such as Samsumg Pay and ApplePay that have opened up different ways in taking a payment with the aid of photo of a payment card of a customer (Scellato and Giordana, 2018).
The disruptors of fintech are not evident only in the startup company in USA which mainly illustrates the fact whether the great ideas are appearing on the global scenario to modify any type of financial services. Now in the UK region, the first UK clearing bank namely ClearBank which does not generally provide easy access to the consumer and is mainly built with the cloud infrastructure and not taking into consideration the system of legacy and at the same time providing open access and providing further inroads to the services for clearing of transaction.
The disruptors of fintech have experienced certain level of barriers. The sector of online payment has continued to emerge as a powerful force in the financial markets and at the same time have maintained control over the different financial process/transactions that are used in various countries. The regulations that laid down by the governmental bodies have been quite complicated in nature and have lead to certain issues which have slowed down the technological process of fintech companies. In context to that, regtech has mainly emerged as a greater force in assissting the companies who are using fintech technologies to adjust in the regulatory environment that is found to be quite complicated as well as complicated in nature (Gomber et al. 2018).
The varied set of response that are provided by the organisation who have integrated the financial technology of fintech has mainly been leading to continuous level of educating and sharing the businesses on the matters it can offer and the changes that are being proposed for the different financial services and assessing the beneficial aspects (Lee and Shin, 2018). The FX strategies that are developed have taken into consideration the different payments considering the various aspects of foreign rate fluctuations.
Emergence of FinTech and its disruptive application in the system of online payments and remitttances and determining the regulatory considerations
The industry that is belonging to financial service have mainly evolved to a greater deal in the various matters of e-commerce. The various targets that are considered for fintech revolution has speed up at the time of settlement of the various domestic payments. This has lead to faster services in the risk management service technology. The different types of regulatory compliance and dealing with the different legacy system has been the major operational aspects for the investment firms that are playing an active role in the financial markets . The different cases that are dealt with various level of technology have eased the various level of regulatory compliance in the short run as well as in the long run scenario. The standard regulatory and compliance process and the different regtech coin have established a more proactive, data drive regulationary implication and the various approaches of surveillance processes. The disruption in the fintech revolution has lead to greater level of customer friendly aspects. As per the various opinions that are put forward by the different researchers in this scenario that have contributed newer knowledge in the vibrant area of technology disruption are assessed in the statement that is described as under
The fintech sector will mainly experience various level of adjustment with the passage of time. The disruption in this paticular technology for the larger fims has lead to outsourcing the applications rather than creating them on an in house basis.
Hence, it is evident that the disruptive technology of fintech has created a major disruption in the case of assessing the global online commerce concerning the fact of mobile e-payment which is determined in the form of a bar chart:
Figure 2: Global Online Commerce
(Source: Lee and Shin, 2018)
The development of a retail system of payment has also been considered a greater aspect in maintaining correlation of indirect externalities on the different cases of retail markets of banking. Thus, to illustrate this fact if the consumer mainly subscribes a particular platfom for payment, it has taken into consideration the various payments that are depicted. The different payyments instruments that are related with the system has been playing a detrimental role in this criterion of the retail payment system. Thus, the payment security is one of the most important criterions for the different customers who have operated in this industry and applying the different techniques of the fintech industry. Thus, the various application of the fintech technology has been mostly increasing in the various implications of the study are are illustrated in the different segments of the study which are analysed in the different segment which has created rapid strides in the longer run as well as in the shorter run. Adoption of data aggregation platform will not only help the government and banking sectors to incorporate better models of statistics that not only help in predicting the future cases of defaults but it will also help in the development of better resources.
The innovations that are made in the system of system may or may not disrupt the different process of existing payments. On the contrary, the front end processes are mainly modified at the time of improvement of the customer and merchant experience. The different categories of open loop mobile payment solution and closed loop mobile payment solution has aslo gained a greater upperhand and have caused an impact on the various implications of google payment procedures. The global diffusion of the mobile payments services has become much more consumer centric on a higher hand. One such app that has been going playing a huge role in this scenario is the Satispay App. Moreover, the various mainstream perceptions that is relatable with that of Fintech has provided immense facility without swiping a credit card or the touching currency. The fintech industry has been disrupting the payment and remittance sectors in the longer scenario of the study. The source of disruption will mainly be from the firms that are having access to fintech technologies and at the same time have invested great products in this sector concerning that of mobile as well as online transfer of money (Marcel and Medel, 2017).
The various digital revolution has been transforming the behaviour of the customers at the time of accessing the financial products, payments and remittances,financial apps. It is evident that the sector of payments and remittances has mainly experienced certain level of changes in the most recent years, but at at the same time with the constant level of penetration of the different applications that are driven by technology have acted as a newer level of catalyst for discovering newer financial services. Thus, the application of Fintech has been reshaping the status quo of the industry and have been experiencing remarkable changes at a much accelerated pace.
Part B- Analysis of regulatory implications that are evolving from the findings of the sector of payments and remittances
In 2016, the report that was created by PWC revealed that by 2019, most of the financial institutes are going to face considerable disruptions. Most of the disruptions are going to come mostly from the fintech firms that are mainly going to invest great products in these sectors. Fintech money transfers occur mainly through two platforms namely as mobile money transfer and online transfer. This is important in the sense that with the development of the business and transactions in the modern life, innovative technologies are being introduced in order to make smooth payments (But, 2017). Both of these platforms are really helpful in order to enhance the payments that too using the mobile phones. Taking the help of mobile wallet it is possible for the peoples to send, store and receive money. The mobile can be used as wallet. In order to enhance the mobile wallet and digital wallet UK vodafone company m-pesa. The m-pesa is successfully operating in Africa, India and other parts of world. Electronic money transfer involves the transmission of the money from one bank account to another only if the account number is exchanged. Even with the development of modern technologies, account number of the recipient even if not shared then money can transferred even if the email id or phone number that is linked with bank account (HANDRO, 2018).
There are certain advantages with the introduction of the online payment and mobile method of payment. One of the important aspect of online and money payment is the fast payment of the money. This is important in the sense that fast payment also helps in the development of better business. Another important aspect of this kind of system is the security of the payment. This is most important in the sense that provision of the security to the customers is the most significant. Most of the companies that are providing the service of online payment use the encryption technology SSL (Lane, 2017). Through this technology, many organisations are ensuring the fact that no unauthorised persons do not get access to the data of the details of the account holders. After the third world war, most of the companies are indulging in the speed, scope and systems impact. Taking the speed into consideration, the inclusion of the mobile payments are increasing in the exponential degree instead of linear pace. The disruptions in the Fintech are increasing daily in each and every industry.
Figure 3: Banking sectors and 4th industrial revolution
(Source: Cio, 2018)
The above figure is showing the fact that how the banking industry is developing. In the year 1784, the first industrial revolution revolution introduced steam and water powered mechanical manufacturing facilities. The second industrial revolution introduced electronically powered machineries (Nataraj and Ashwani, 2018). Through the third industrial revolution introduced better machineries with high IT industries. Fourth industry revolution has introduced Cyber Physical Systems and the convergence of physical and virtual ecosystems. From the period of 1970, the development of better banking systems with the development and integration of IT sectors. Introduction of data has enabled better process of the data consumption. These technologies are being rendered in platforms like smartphones, assets and data. The overall utilization of the data is important in the sense that most of the people are using the transformation in the technologies in the expansion of the assets (Niforos et al. 2017). In modern business, in order to highlight the assets and transformation of the assets are improving.
The technologies that Fintech is using in developing the business and is changing the game in the financial industry. These technologies are as followed
Chatbox for customers
This is the new softwares that most of the companies in both financial and non-financial industry are using in order to solve the queries of the customers. Most of the banking companies are using these kinds of softwares in tracking the customers satisfaction and handling the queries becomes more easy. This kinds of softwares are automated software and the code is encrypted in such a way that they have inbuilt machine learning software and they are having the capability of learning from the human interactions. This phenomenon is known as machine learning (Salmony, 2017). One of the Japan’s leading banks has initiated this system so that they can direct the customers to the desired directions and desired sectors in the websites. Some chatbox can also provide financial advices to the clients. One of the important examples for the development of better financial performances is ERICA, the bank of America. Through this chatbox, the robots that are designed with high technologies can read the customer mail and can give efficient advices to them regarding the overall resource utilisation and the courses of investment (Stames et al. 2017). The fintech industry has been disrupting the payment and remittance sectors in the longer scenario of the study. The source of disruption will mainly be from the firms that are having access to fintech technologies and at the same time have invested great products in this sector concerning that of mobile as well as online transfer of money. Taking the help of the installing robots in the chat box are actually reducing the whole cost of operation and will free up the telecallers so that they can only focus on the value addition of the company. This is important in the sense that if banking and financial institutes can minimise the costs of the operation then it will be much easier for them to indulge in better and increased level of the production of better banking products.
Machine learning and AI for fraud detection
This is one of the important aspects in the sense that it will be highlighting the security policies that will be taken in order to detect the fraudulent activities within the any financial institutes. This is one of the important scenarios in the sense that detection of fraud activities within the banking institutes are literally making the business successful and taking the business into a new direction. This is important in the sense that most of the online money transaction sites are generally targeted by hackers. In order to give the protection to the consumers it is important to give protection to the web pages and websites (Staschen and Meagher, 2018). These are useful for the development of secure and effective transactions. In order to track the fraudulent activities within the industries, most of the banking industry has implemented artificial intelligence into the ATM’s and also in banking websites. For instance most of the banks and financial institutes are using currency detection software and it is highly influential for the development of security level. Increasing number of malwares cyber threats will automatically require millions of dollars for banks to introduce the traditional process of giving protection to the customers. Traditional process of identification of frauds and other illegal actions will not only reduce the overall productivity of the banks and the productivity of the employees as well (Truong, 2016). This is important in the sense that it will be highlighting the overall resource allocation of the financial institutions among the employees. On the other hand, it is also not possible for the banks to reach the pace of the bank surveillance. Adoption of data aggregation platform will not only help the government and banking sectors to incorporate better models of statistics that not only help in predicting the future cases of defaults but it will also help in the development of better resources.
Use of better security systems will reduce the manual efforts by 50%. By indulging in the fraud detection system it will be highlighting the overall utilisation for faster transaction it is important for the Fintech to indulge in better transactions for the customers, Fintech is actually focussing on the security system.
Omni-channel banking and obsolescence of bank branches
It is important for the banking sectors to indulge in strong communication among all the sectors of the banking sectors and aligning them with better and mobile connectivity will increase the development of the business. It is important to take any kind of decisions by aligning with the development of resources (Varga, 2017) This is important in the sense that it will be making strong interconnected channels and this is important in the sense that it will be highlighting the effectiveness of the omni banking channels. In many countries of European Union's about 9100 bank branches have been closed down with the introduction of the mobile banking and mobile payments.
Biometrics for stronger security
Introducing the biometric is a way of increasing the security within the Fintech compliances and disruptions that was happening in the financial markets. Introducing the vocal and fingerprint identity is one of the important aspect in increasing the overall security of the banking sectors. In many of the websites it is important to estimate the overall human resource management that most of banking industry is going to utilise. According to Truong (2016)It is important in the sense that making the office premises of the financial institutes and the website of the monetary authority in improving the social security and indulging in the development of restricting methods to restrict the unwanted persons in the premises will be able to make the place more safe. This is important aspect in the sense that it will be highlighting the policies that will help in the development of better and better treatment of the policies will increase the flow of the money and flow of the income.
Figure 4: Trust in banks performances
(Source: web thesis.biblio, 2018)
In the above diagram it can be seen that in both US and UK, the trust of the common people are decreasing in nature and it can be seen that from the 2007 to 2012 the trust of the common people are decreasing in nature and in both the country. On the other hand, in the two country it is highly recommended that most of the people are having comfortness in using the digital wallet and mobile payment has made them more easy and it has been easy in the UK and US to indulge in the development of better resource allocation and will be more prone to the development of better technology. Before the global financial crisis, most of the banks and small scale industries would have got enough support from the small and rural banks (Niforos et al. 2017). This is important in the sense that in order to highlight the overall resource allocation and with gradual development of business, most of the individual are banking on the digital wallets and e-banking of the government. This is important in the sense that it will be highlighting the overall allocation of the financial flow that will indulge in the development of the business.
In many studies it has been seen that an age segment of 18 to 49, is more than 90% in the US. Even more surprising a thing that makes us understand the globalisation of the Internet phenomenon is the Internet adoption rate for the age segment between 50 and 64 years. Almost 90%. Over 65 the percentage drops to 60%, but remains high.
The whole study is going to contribute deeply in the area of disruption of Fintech that is happening in the world wide business. This is important in the sense that most of the financial institutions are looking to increase the flow of the money and the smooth movement of transaction of the money. This is important in the sense that in order to highlight the flow of the money, most of the business units are implementing better technologies that are actually helping consumers and private enterprises in making a deep relationship with the clients. In order to incorporate the banking sectors to identify the disruption of Fintech.
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