REGISTRO DOI: 10.69849/revistaft/ar10202002010830
Lucas Gonçalves de Lima
Abstract
The banking and financial sector is undergoing a profound technological revolution that is significantly altering investment dynamics and challenging traditional institutions. The increasing use of advanced technologies such as artificial intelligence (AI), asset tokenization, and process automation enhances operational efficiency and accessibility while democratizing investment opportunities, thereby fostering a new era of financial inclusion. The rise of fintechs, which offer innovative and personalized solutions, underscores the necessity for traditional banks to adapt in order to remain competitive in this rapidly evolving landscape. Key issues, including privacy concerns, regulatory frameworks, and the integration of environmental, social, and governance (ESG) criteria, are vital for ensuring investor trust and promoting a sustainable future. Recent studies highlight the importance of monitoring the impact of fintechs on the performance of traditional banks and the challenges posed by BigTechs, which further complicate the financial ecosystem. As banks grapple with the need to innovate, their ability to harness emerging technologies and adapt their strategies will be critical for their long-term viability and success. This intersection of technology and finance is not only transforming the sector but also redefining relationships among investors, institutions, and the concept of investment itself. Ultimately, the ongoing evolution within the banking industry reflects broader trends toward modernization, inclusivity, and a more equitable financial landscape.
Keywords: Banking Technology; Fintech; Financial Inclusion; Asset Tokenization; Artificial Intelligence (AI).
The banking and financial sector is undergoing an unprecedented technological revolution, promising to transform how investments are made and managed. With the advancement of digital technologies, new trends are emerging, shaping the future of investments and impacting both financial institutions and individual investors. One of the main trends is the use of artificial intelligence (AI), which has been increasingly applied in data analysis, market predictions, and automated investment decisions. AI allows asset managers to identify patterns in large volumes of data, providing a competitive edge by improving accuracy in financial forecasts. Furthermore, machine learning algorithms are being used to optimize trading strategies and manage risks more efficiently.
Source: Skillfine (2020).
Another significant trend is the tokenization of assets, which uses blockchain technology to represent physical and financial assets as digital tokens. This approach democratizes access to investments, allowing more people to participate in the market. Tokenization facilitates liquidity, reduces transaction costs, and increases transparency, which are essential aspects for gaining investor trust. Additionally, process automation and the use of chatbots are revolutionizing customer service in financial institutions. These resources offer faster and more efficient service, enabling investors to access information and services in real-time, 24 hours a day. This accessibility and efficiency are crucial in a world where the speed of information is decisive for financial decision-making.
Fintechs are also gaining prominence, presenting innovative financial solutions that challenge traditional institutions. These startups use technology to offer banking, investment, and payment services that are faster and more accessible, attracting the attention of investors seeking more convenient and personalized options. Finally, sustainability and responsible investing are becoming increasingly important priorities for investors. Technology enables financial institutions to integrate environmental, social, and governance (ESG) criteria into their investment analyses, promoting a more ethical and responsible future in the sector.
The study by Brian, John, and Jacob (2017) highlights a significant transformation in the financial landscape, noting that investments in fintech startups have more than tripled in the past five years. This accelerated growth has sparked debates about the future of traditional banks. The authors analyze the emergence and evolution of cloud computing and its profound impact on investments, predicting a revolution in customer experience that will redefine banking, saving, and investing beyond 2020. They anticipate a complete paradigm shift where technology will not only complement financial advisors but position them as secondary resources within innovative technological models. Furthermore, the study addresses critical issues related to privacy concerns and the implications of applicable federal laws in this evolving financial ecosystem.
Joshi and Klein (2018) raise fundamental questions about the future of currencies, questioning whether Bitcoin or other cryptocurrencies will dominate. They observe that the rapid growth of fintechs and digital ecosystems is reshaping the banking landscape as technology increasingly replaces physical currency with electronic transactions. This evolution has resulted in a more sophisticated financial environment characterized by complex and diverse products, contributing to impressive growth in global financial assets, which exceed $160 trillion. The authors emphasize that geographical barriers in financial transactions have largely disappeared, allowing for fluid interactions worldwide. However, this global interconnectedness implies that events in one country can instantaneously impact global markets. They also highlight that the repercussions of the financial crisis of the last decade continue to reverberate in major economies, while financing is now used both as a weapon in global power dynamics and as a facilitator of cross-border acquisitions. Additionally, governments are competing with tax rates to attract global corporations, creating opportunities for individual investors to geographically diversify their portfolios.
Phan et al. (2020) propose a hypothesis that the growth of financial technology (FinTech) negatively impacts bank performance. Focusing on the Indonesian market, where fintechs have experienced significant expansion, the authors analyze a sample of 41 banks along with data from various fintech companies. Their results indicate that the growth of fintechs adversely affects the performance of traditional banks. To support their hypothesis, they conduct multiple tests, including robustness analyses that evaluate sensitivity to banking characteristics, the effects of the Global Financial Crisis, and the application of alternative estimators. The main conclusion is that the growth of fintechs serves as a negative predictor of banking performance, highlighting the disruptive potential of technological advances in the financial sector.
Romānova and Kudinska (2016) explore the profound changes that innovations and technology have brought to the global banking sector. They highlight how financial technologies (FinTech) have become essential for the sector, forcing traditional institutions to compete not only with each other but also against non-financial entities offering services such as payment processing. The rise of fintechs has destabilized the traditional banking landscape, leading banks to invest more in technological solutions and rethink their service delivery channels, especially in business-to-consumer models. The authors argue that while some in the financial industry view fintechs as a threat, others see them as an opportunity to enhance flexibility and add services. The article aims to analyze recent trends in the banking sector, identify the risks and opportunities presented by fintechs, and provide practical recommendations for banks and regulators to mitigate the associated risks. By examining the experiences of leading banks in Europe and the United States, as well as conducting surveys in different countries, the study evaluates the evolving financial innovation market and emphasizes the need for banks to adapt strategically to maintain their competitiveness in a rapidly changing environment.
Finally, Stulz (2019) analyzes the unique position of banks as financial institutions that produce net claims, such as demand deposits, while simultaneously granting loans. He emphasizes the regulatory advantages that non-bank fintech companies enjoy, allowing them to challenge banks in specific product areas where banks’ unique capabilities—such as deposit gathering and synergies with borrowers—are not as critical. While banks may replicate many of the services offered by fintechs, their responses are often hindered by outdated IT systems and internal complexities. Stulz also distinguishes fintechs from BigTechs, noting that the latter represent a more considerable challenge to banks, especially in consumer financing and small business lending, due to their advantages that banks may struggle to match. He warns that both fintechs and BigTechs are contributing to the diminishing comparative advantage of banks in accessing information about parties seeking credit. The ability of banks to face these threats will depend on their effectiveness in leveraging modern information technologies and achieving economies of scale and scope that their non-bank competitors may find difficult to replicate.
The technological revolution permeating the banking and financial sector is significantly reshaping the dynamics of investment, challenging traditional institutions and shaping investor expectations. The increasing adoption of technologies such as artificial intelligence, asset tokenization, and process automation not only enhances efficiency and accessibility but also democratizes investment opportunities, fostering a new era of financial inclusion. The emergence of fintechs, with innovative solutions that meet the demand for faster and more personalized services, underscores the need for traditional financial institutions to adapt in order to remain competitive in an ever-evolving environment.
Furthermore, issues such as privacy, regulation, and the integration of ESG criteria are essential to ensuring investor trust and promoting a more sustainable and responsible future. Recent studies emphasize the importance of monitoring the impact of fintechs on the performance of traditional banks and the challenges posed by BigTechs in this new landscape. As banks face pressure to innovate, their ability to leverage emerging technologies and adapt their strategies will be crucial for long-term survival and success. In summary, the intersection of technology and finance is not only transforming the sector but also redefining the relationships between investors, institutions, and the very concept of investment.
References
Brian, D., John, R., & Jacob, D. (2017). Back to the Future: The Landscape of the Financial Services Industry 2020 and Beyond. , 2. https://doi.org/10.22606/jaef.2017.21004.
Joshi, M., & Klein, J. (2018). Technological Disruption in Global Finance. Oxford Scholarship Online. https://doi.org/10.1093/OSO/9780198827481.003.0004.
Phan, D., Narayan, P., Rahman, R., & Hutabarat, A. (2020). Do financial technology firms influence bank performance?. Pacific-Basin Finance Journal. https://doi.org/10.1016/j.pacfin.2019.101210.
Romānova, I., & Kudinska, M. (2016). Banking and fintech: A challenge or opportunity?. In Contemporary issues in finance: Current challenges from across Europe (Vol. 98, pp. 21-35). Emerald Group Publishing Limited.
Savchenko, T., & Tatarko, A. (2019). CURRENT TRENDS OF FINANCIAL TECHNOLOGY DEVELOPMENT. Vìsnik Sumsʹkogo deržavnogo unìversitetu. https://doi.org/10.21272/1817-9215.2019.3-1.
Skillfine. The Future of Financial Data Analytics: Trends and Innovations to Watch For. 2020. Available in: https://skillfine.com/financial-data-analytics-trends/
Stulz, R. (2019). Fintech, Bigtech, and the Future of Banks. Corporate Finance: Capital Structure & Payout Policies eJournal. https://doi.org/10.1111/jacf.12378.