The evolution and widespread applicability of FinTech development is a paradigm shift for the banking sector. Keeping up with its pace should be a matter of concern for every entity which is likely to be affected. FinTech firms can be classified as:
a) Information technology and software firms supporting and facilitating the financial sector firms more so termed as bank technology service providers and
b) Tech-startups and small innovative firms substituting the regular financial intermediary, the ease of accessibility to which can cause ‘disruptions’ for mainstream banks and banking systems.
As we quote in our recent eNewsletter “The reason FinTech is “so hot” is down to the fact that it is moving financial operations from the boardroom to the internet. Banks have time to adapt but that time is running low. Customers don’t want to go to 100 different companies to get their lending, investments and payments controlled. They want to come to a name and an institution they know and recognise. Banks have to act to utilise that brand recognition.” Chris Skinner states.
According to CB Insights, a research firm, global investments in FinTech has grown from $4 billion in 2013 to approximately $12 billion at the end of 2014. Nearly all aspects of financial services can be substituted by FinTech companies from deposits and lending to capital raising and investment management, from market provisioning payments to insurance services. Peer-to-peer lending(P2P) and crowdfunding are two forms of online lending platforms which have gained considerable momentum in the past few years in developed markets, the growing popularity of which is moving to emerging markets as well where the need of low cost financing is on the rise.
Islamic finance can act as an alternative to the conventional financial system. The major features of Islamic finance, like asset-backing, the bans on uncertainty (Gharar) and interest or usury (Riba), and risk and profit sharing seem to provide a more resilient financial system. Under Islamic banking, lending and borrowing are fully asset-backed and there is no scope for debt transfer (swaps) or speculative transactions beyond the real value.
The reason why Islamic banks have not felt the full brunt of the global credit crisis is that it is difficult to get loans from Islamic banks unless the loans are deemed prudent, growth promoting and beneficial to society.
Islamic finance, or financial services that conform to the tenets of Islam, offers a potential market of 1.5 billion Muslims that should continue to offer opportunities for foreign and domestic banks. In the last five years, Islamic finance has grown by 15 to 20 percent annually, with an estimated $270 billion in assets, controlled by approximately 300 Islamic banks in more than 25 countries.