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Finnovation and How It Has Changed Traditional Banking

Posted by Devayani Bapat

May 10, 2024

From mobile applications to blockchain technology, the banking sector and how customers interact with it has changed significantly.

Technology has introduced AI solutions for finance and banking, and this, in turn, has revolutionized how businesses work, including how they engage with banking services. Convenience has become paramount for organizations, driving banks to embrace technology and finnovation to enhance efficiency and eliminate outdated processes.

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However, this transformation goes beyond simple automation. Embracing fintech and innovation entails redefining traditional banking practices, integrating digital solutions into operations, and prioritizing customer-centric experiences. Here’s a glimpse into that shift and how finnovation is altering banking. Let’s take a look.

What is Finnovation?


Financial innovation, often called ‘Finnovation,’ represents the fusion of financial services with the technological advancements that help drive transformative change. 

This term encompasses many innovations, including mobile banking, artificial intelligence (AI), process gamification, blockchain technology, and cybersecurity measures like cloud technology.  

The impact of finnovation, machine learning, and AI solutions for finance on the banking industry is profound. It has reshaped traditional banking practices and offered new opportunities to enhance customer experiences while reducing operational costs. It has also changed the way SMEs now operate and navigate the ever-changing financial landscape. Here’s a closer look: 

Here are four ways in which finnovation has changed traditional banking:

The Rise of Neobanks:


The emergence of neobanks marks a transformative shift in the banking landscape, facilitated by advancements in financial technology. Neobanks, or challenger banks, operate exclusively online without physical branch locations, offering various banking services through mobile applications and digital platforms. This departure from traditional brick-and-mortar institutions represents one of the most significant moves in banking history.

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In contrast to conventional banks, neobanks provide customers with seamless, efficient, and paperless banking experiences. Not just that, they offer entrepreneurs tech-driven, quicker alternate financing options. We all know that small businesses and startups require capital to thrive. With quicker processing times, less paperwork, and speedy approvals, neobanks help these enterprises meet their needs and experience accelerated growth. Gone are the days of long queues and ATMs out of money; instead, users can manage their finances effortlessly with the tap of a screen. This paradigm shift signifies the convergence of technology and finance, reshaping customer expectations and industry standards.  

Monzo, a UK-based neobank, emulates the success of this model, boasting 7.4 million users and a transaction volume of £33.6 billion as of 2023. This rapid growth underscores the widespread adoption and appeal of neobanks, highlighting their potential to redefine the future of business banking. With fintech paving the way for innovation, neobanks continue to pioneer a future for the financial ecosystem that is more accessible, convenient, and customer-centric.

Biometrics and Banking:


Integrating biometric authentication within banking applications showcases the true paradigm shift within the banking sector. By leveraging facial recognition and fingerprint scanning technologies, banks worldwide are enhancing security measures while offering unparalleled convenience to customers. 

Biometrics provides a vital way for banks to verify their customer identities accurately, significantly mitigating the risks associated with fraudulent activities and cyber threats. Notable institutions such as HSBC and JP Morgan are at the forefront of adopting these advancements, enabling customers to enjoy a secure, seamless, and efficient banking experience. With the rise of chatbots, face recognition, fingerprint access, and voice recognition, customers, as well as businesses, are protected by an additional layer of verification and security. Biometric identification for banking allows SMEs to coat their business finances with an extra layer of much-needed security in order to mitigate digital theft, fraudulent activities, and data breaches. 

Utilizing biometric data represents a pinnacle of finnovation, revolutionizing traditional banking practices by delivering swift and reliable identification methods. This evolution highlights the industry’s commitment to safeguarding customer interests and businesses big and small while embracing cutting-edge technologies to redefine the standards of banking security and convenience. 

Cloud Technology:


The adoption of cloud technology has brought about significant changes, particularly in how the banking sector handles data management and operational efficiency. Banks handle vast volumes of data, and cloud computing offers a scalable and secure platform for optimally generating, recording, and storing this information.  

Cloud service providers ensure robust security measures to safeguard sensitive and confidential data, addressing concerns around privacy and compliance within the banking industry. Banks can streamline their operations by leveraging cloud solutions and reducing significant costs associated with on-premises data storage and maintenance.

While this works in favor of banks, it helps businesses also access all their data in one secure cloud domain. Cloud technology enables firms to have a centralized system where all their important banking and financial data is stored in a cohesive, safe space, which allows easy access to digital documents across the board. This shift to cloud-based storage minimizes the need for extensive physical infrastructure and specialized trained people to manage data. This enables businesses to channel their resources more efficiently into growth activities and strategy-driven tasks. 

Overall, cloud technology, a true testament to AI in banking and financial services, has become a fundamental enabler of scalability and security within the banking sector. It empowers institutions to enhance their competitiveness and deliver and adopt innovative financial services in a dynamic digital landscape.

The Rise of Blockchain Technology:


Blockchain technology has transformed the banking sector and has introduced a secure and transparent method for recording and verifying information and transactions. Blockchain technology employs decentralized, encrypted ledgers, making it exceptionally difficult for unauthorized individuals to tamper with or compromise data. Thus, it enhances cybersecurity and mitigates fraud risks.  

This decentralized approach, a representation of AI in banking and finance, has fundamentally transformed the traditional banking model, eliminating the need for intermediary institutions like correspondent banks. Transactions conducted on blockchain networks can be verified in real-time, streamlining processes and significantly reducing operational costs. This especially helps SMEs improve transparency in transactions and add a layer of trust to their business processes. It also adds an element of traceability across the financial processes, thereby allowing small businesses to mitigate fraudulent activities with ease.

Moreover, blockchain technology has facilitated the creation of digital currencies, enabling swift and efficient cross-border transactions that previously required several days to process through traditional banking channels, an absolute boon for small businesses that are seeking to grow globally. This innovation has empowered customers with instant access to financial services at their fingertips, highlighting the transformative impact of finnovation on modern banking practices.

The Last Word:


The rise of Finnovation has fundamentally altered traditional banking practices. The rise of AI in banking and financial services has reshaped the way businesses navigate banking functions. AI-powered solutions have helped streamline processes as well as optimize crucial decision-making. 

In the world we live in today, businesses can leverage AI to create personalized banking solutions, streamlined transactions, and real-time financial insights. From chatbots that handle day-to-day grievances, face recognition, and biometric recognition to provide added security and advanced analytics that help businesses predict market trends and stay ahead of the curve, finnovation has truly empowered businesses to navigate the financial landscape with increased ease. As technology continues to boom, businesses must realize that embracing and adopting AI and fintech is the only way forward. 

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Want to know more? Escalon has helped over 5,000 companies across various industries improve their compliance regarding internal controls and streamline processes. Talk to an expert today.

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal, or accounting advice in this article. If you would like to engage with Escalon, please get in touch with us here.

Author

Devayani Bapat
Devayani Bapat

With 6 years of experience in copywriting and social media management across genres, Devayani's heart lies with weaving words into stories and visuals into carefully crafted narratives that’ll keep you wanting more. She carries with her, her pocket notebook, a trusted confidante that goes with her wherever she goes, and scribbles down into it anecdotes on the go. Her secret weapon for keeping all things copy interesting! Apart from writing, Devayani is huge on travelling. You'll find her booking her next adventure while she's on her current one. And while on those adventures, you'll find her devouring true crime books one after the other. Whether it's a low down on a recent case or one that occurred 70 years ago, she can cook up a story narration you'll never forget.

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