If you’re learning about a new industry, then you need to familiarise yourself with the jargon of that industry. The jargon is not meant to confuse you; it is meant to help you communicate concepts as clearly and quickly as possible.
With the marriage of finance with ever-evolving technology, common terminologies have also transformed. Two often used terms in the industry that any finance enthusiast or professional needs to know are “Finserv” and “FinTech.” These terms are sometimes used interchangeably, but there are important distinctions between them.
How is FinTech different from Finserv?
While these sound similar, certain points identify the need for two separate terms. To explore the difference, let’s first understand the two terms individually.
What is Finserv?
Finserv is an abbreviation for “financial services”. Essentially, any company that offers financial services is known as a Finserv company. This may include banks, non-banking financial corporations (NBFCs), insurance companies, brokerages, and so on.
Finserv is a very old term and has been used for decades to refer to financial service providers. For example, a prominent financial company in India is Bajaj Finserv.
Finserv is commonly used in the industry to describe any company that provides financial services. Banks that have been around for more than 50 years in India are also described as Finserv companies.
What is FinTech?
FinTech is an abbreviation for “financial technology”. This refers to companies that leverage technology in order to provide financial services. FinTech is a relatively new term that has been around for a couple of decades. FinTech is usually used to refer to tech start-ups that are operating in the financial space.
You may say that even Finserv companies use technology in some form or the other. For example, every company uses computers these days, so are Finserv companies also FinTech companies?
The simple answer is “no”. FinTech companies are different from Finserv companies because FinTech companies use technology in order to disrupt the existing financial space. The use of the latest technology means that FinTech start-ups can provide a financial service in a more efficient or cost-effective way than was possible before. For instance, in Asia alone, more than 2.38 billion people used a FinTech service in 2021.
There are several examples of FinTech start-ups in India as well, like PayTM, Cred, and MobiKwik, to name a few. In 2021, the overall market size of the Indian FinTech industry was $31 billion, and it is estimated to reach $150 billion by 2025.
The Primary Differences
There are several differences between a FinTech and Finserv company. Some of the most notable ones are below.
Disruptive – Finserv companies have been operating for a long time. They have similar business models that are time-proven. For example, every bank operates in a standardised way, and there are only a few aspects to differentiate one bank from another.
However, FinTech start-ups are defined as new and disruptive. These companies are much more experimental, and they aim to do business differently by leveraging the latest technology.
For example, the payments space has seen a lot of activity by new FinTech start-ups. These start-ups allow you to digitally make payments simply by using your smartphone without the need to carry cash or use a debit card or credit card. This is just one of the ways in which FinTech start-ups are revolutionising finance.
Scalable – The goal of a FinTech company is to provide their services to underserved communities and areas.
Since these companies use the internet and smartphones, they can reach the customers that traditional Finserv cannot. With the ubiquity of smartphones in today’s era, FinTech companies can provide their services to a large swath of the population.
Further, since the cost of acquiring a new customer is relatively low, FinTech start-ups can scale their operations very quickly and may even record high growth numbers in a relatively short period of time.
Digital – The operations of a FinTech company are digital. Customers can interact with these companies entirely online, and there is no need for a physical presence.
For example, traditional Finserv companies may require you to visit their branch office or head office to do business with them. However, a FinTech start-up has capabilities that allow you to do all your business with them through an app or a website. There is no need to stand in line at an office when dealing with a FinTech company.
Further, FinTech start-ups are leading the way to financial inclusion thanks to digital access.
Lower Cost – Due to the reduction in the cost of digital infrastructure, FinTech start-ups can offer their services at highly competitive rates as compared to Finserv companies. Several FinTech companies even offer a large portion of their services for free. For example, a person does not need to pay anything in order to use PayTM.
The Future of Finance
It is clear that FinTech is the future of finance. However, this does not mean that Finserv companies will go out of business. Instead, almost every Finserv company is actively working towards adopting technology to offer better and more cost-effective services to their customers.
For example, banks like ICICI have launched their own mobile app through which customers can deal with almost any banking operation. Customers can use this app to transfer money, request a debit or credit card, check their transactions, apply for loans, and so on.
FinTech start-ups are facing tough competition from Finserv companies while encroaching on their space. As the popularity of FinTech services grows, more and more Finserv companies are digitally transforming themselves in order to stay relevant in the future.
Open banking and automation allow companies to reach more customers than ever before. As of today, there are over 1.7 billion individuals in the world without access to banking services. But with the advent of new technology, it seems the picture is changing, and changing for good.
Several global technology powerhouses are also entering the financial space to take advantage of the financial technology revolution. Even Apple and Microsoft are testing the waters. The day may not be far when almost every financial service will be available to everyone at the click of a button on their smartphones.
Sooner than later, every financial company will become a FinTech company. The road ahead is bright for companies that are open to leveraging new technology to provide better services. The line between Finserv and FinTech may dissolve soon enough as even traditional companies adopt FinTech capabilities.
If you’re banking online, you should be careful of fraud. Read our primer on avoiding fraud to keep yourself safe while operating in the digital space.
Also, do contact Finezza if you’re looking for comprehensive credit assessment solutions. We hope you’ve found our article helpful and informative.