An Ultimate Guide to Banking, FinTech & Blockchain
Banking includes a vast diversity of financial institutions that reserve the money of individuals, businesses, and other entities. Banks provide financial services that help people save, manage and invest their money. But of course, businesses can opt for premium banking, fintech, and blockchain services for hire to avoid burdening themselves with such worries. This article will discuss the role of banking, fintech, and blockchain services.
What is Banking?
Banking is the business of conserving money for others. Banks lend this money, generating interest that creates profits for the bank and its customers.
A bank is a financial organization authorized to accept deposits and make loans. But they may also conduct other financial services.
The term “bank” can refer to several different types of financial organizations — comprising bank and trust companies, savings and loan associations, credit unions, or any other type of institution that accepts deposits.
Banking can also be defined as the business activity of submitting and safeguarding money possessed by other individuals and entities. Then lending out this currency to administer economic activities such as making a profit or simply covering the operating expenses.
Banking is an industry that regulates cash, credit, and other financial transactions for individual clients and businesses alike.
Banking provides the liquidity required for an individual, families, and businesses to invest in the future and is one of the key drivers of the economy.
In most countries, banks are organized by the national government or central bank. There are several different types of banks and depending on the type, a bank may also provide various financial services ranging from providing safe deposit boxes and currency exchange to retirement and income management.
Understanding the Importance of Banks
Banks are a very important part of the economy because they offer integral services for both consumers and businesses. As exceptional financial services providers, they provide a safe place to store cash. Through a variety of account categories such as checking and saving accounts and certificates of deposit (CDs), people can administer regular banking transactions like deposits, withdrawals, check writing, and bill payments.
It also enables individuals or companies to save their hard-earned money and earn interest on the investment. The money stored in most bank accounts is federally certified by the Federal Deposit Insurance Corporation (FDIC) up to a margin of $250,000 for individual depositors and $500,000 for jointly held deposits.
Banks also deliver credit opportunities for people and associations. The bank entrusts the money deposited by people at the bank—short-term cash—to others for long-term debt such as car loans, credit cards, mortgages, and other debt vehicles.
This technique helps develop liquidity in the market—which builds money and keeps the supply going.
Various Types of Banks
Banks are divided into a category based on the type of business they conduct. Banks in a specific category offer comparable services.
Some banks may concentrate on consumers while others prefer to focus on investments, corporations, or other sectors of financial services.
Whether someone is trying to manage their finances or grow a business, here is a list of the most popular types of banks distinct to every need.
Retail Banks
These banks are intended to deal particularly with retail consumers, even though some global financial service companies comprise both retail and commercial banking departments. These banks offer services to the general public, therefore, are also termed personal or general banking organizations.
Retail banks provide various services like checking and savings accounts, loan and mortgage assistance, financing for vehicles, and short-term loans like overdraft protection.
Many larger retail banks may also provide their credit card and foreign currency exchange services to their clients. Larger retail banks also often cater to high-net-worth people with special services such as personal banking and wealth administration.
Commercial or Corporate Banks
The commercial banks provide specialty services to their company clients, from small business owners to large, corporate entities.
Along with day-to-day business banking, these banks also provide their clients with credit services, cash management, commercial real estate services, employer services, and trade finance, among other services.
Investment Banks
Such banks emphasize offering corporate clients complex services and financial agreements like underwriting and promoting merger and acquisition (M&A) activities.
As such, they are apprehended principally as financial intermediates in most of these transactions. Consumers generally range from large corporations, other financial institutions, pension funds, governments, and hedge funds.
Online-Only Banks
Such banks are also known as virtual banks or “neobanks” that offer e-banking services via websites and Banking Apps. While regular banks have digital services, online-only banks have no brick-and-mortar departments. This cuts overhead, enabling the online bank to pass the savings to clients.
Bank vs. Credit Union
Credit unions vary in extent from minor, community-based entities to larger ones with thousands of departments across the country. Just like banks, credit unions offer routine financial services for their clients, who are commonly called members. These services include deposit, withdrawal, and basic credit services.
But there are some inherent distinctions between the two. A bank is a profit-driven element, while a credit union is a non-profit institution traditionally operated by volunteers. Established, possessed, and operated by participants, they are generally tax-exempt.
Members purchase shares in the co-op, and that money is combined to deliver a credit union's credit services. Because they are minor entities, they tend to provide offer a limited range of services compared to banks.
Advantages of Banking
Here are some advantages of banking:
Security
Banks can provide cash in case of theft and natural disasters like fires or floods. The banking insurance may not cover money lost in the home, car, or on a person. But banks don’t typically carry the same risk.
Insurance
Banking security is more than just vaults and guards. Most of the assets are federally insured for up to $250,000 by the federal government if the organization fails. The FDIC (Federal Deposit Insurance Corporation) insures assets in banks and the NCUA (National Credit Union Administration) guarantees assets in credit unions. Federal laws also require organizations to maintain minimum levels to help them remain solvent.
Convenience
Banks allow people to access their money whenever it is needed. They can also invest in “one-stop shopping” for financial provisions from enterprises to home and auto loans, along with other financial services. Convenience, along with interest rates and low fees, is a major selling point for banks.
Services to Grow Wealth
Banks offer many services that can help grow wealth. These include high-yield checking or savings accounts, individual retirement accounts (IRAs), self-directed plans, and cards of deposit (CDs).
What is Fintech?
The word “FinTech” is simply an assortment of the words “financial” and “technology”. It uses the technology to deliver financial services and properties to consumers.
This could be in the areas of banking, insurance, investing – anything that relates to finance. Although it’s a relatively new word, FinTech has always altered the financial industry. However, the internet, incorporated with the widespread use of gadgets like smartphones and tablets, means the speed of this change accelerated greatly in recent years strives to improve and automate the delivery and use of financial services.
At its core, fintech is used to help corporations, business owners and clients better organize their financial operations, processes, and lives by employing specialized software and algorithms that are exclusively used on computers and, increasingly, smartphones.
The term FinTech is derived by uniting two words which are financial services and digital technology. In a nutshell, FinTech simply encourages the use of digital technology by start-ups to come up with imaginative products and services such as mobile payments, substitute finance, online banking, big data, and all-around financial management.
How does Fintech Works?
Greatly, the term "financial technology" can relate to any innovative way in how people transact business, from the invention of digital wealth to double-entry bookkeeping. Since the internet uprising and the mobile internet/smartphone revolution, however, financial technology has evolved explosively.
Fintech is originally illustrated as the computer technology correlated to the back office of banks or trading firms, but now interprets a broad variety of technological interventions into personal and commercial finance.
Fintech now describes a variety of financial activities, such as money transfers, depositing a check with the smartphone, bypassing a bank branch to refer for credit, raising money for a business start-up, or organizing the investments, generally without the employment of a person.
According to Fintech Adoption Index, one-third of clients use at least two or more services from FinTech Companies and those customers are also increasingly conscious of FinTech as a part of their daily lives.
How does Fintech affect Banking?
FinTech for banking has influenced several applications and advanced thy for customers to access their finances. Its effect ranges from mobile payment apps to investment and insurance companies.
This serious influence of FinTech can also be seen as a possible threat to the brick-and-mortar or formal bank the s.
In the recent digital era, customers are not keen to go for services provided by the traditional financial services industry. Instead, they prefer services that are quick and safe. This is the reason why FinTech is progressing in popularity and causing upheaval in tanking and other financial services.
Smart Chip Technology
Smart chip ATM cards have considerably helped in undervaluing the financial loss that arises in the case of mishaps. It comes with EMV technology that is embedded in a chip. This technology uses a one-time password for each transaction.
It improves the security since the code is useful only for one transaction; so, even if somebody steals it, they won’t be able to do anything.
Biometric Sensors
FinTech in the banking industry has given birth to many creations and biometric detectors are one of them. Biometric detectors or sensors along with Iris scanners are two specialized improvements that ATMs are testifying. Moreover, these improvements are path-breaking since they would eliminate the need to carry a plastic card. Furthermore, people won’t need to remember the pin.
Apart from offering comfort and ease, these developments will also make ATMs safer than ever, since no one will be able to access someone's account without any password. The biometric ATMs use incorporated mobile applications, fingerprint sensors, palm, and eye recognition to specify the account’s owner.
To make the designation more precise and secure, ATMs also use micro-veins which eradicates the mistakes made by ATMs in customer recognition.
Omni-channel & Branchless Banking
FinTech financial services are renovating the whole banking system from a branch-specific procedure to several digital channels such as online, social, and mobile. It also lessens the bank’s dependence on its brick-and-mortar branches to process.
As a result, we see many banks lessening their number of departments by approving the Omni-channel banking.
E-Wallets
The immense growth of E-wallets is another indicator of the rise of FinTech financial services. The E-wallets are used for an abundance of objectives namely P2P payments, top-up and utility bills, international remittances, booking tickets, and many more.
Benefits of FinTech
Here is how fintech helps with business and private transactions:
Speed and Convenience
Fintech products manage to be provided online and so are susceptible and quicker for consumers to access.
Greater Choice
Consumers are advantaged by an enormous choice of properties and services because they can be acquired remotely, regardless of the location.
Cheaper Deals
Fintech companies may not require to subsidize money in physical infrastructure like a branch network so may be able to submit reasonable deals to consumers.
More Personalised Products
Technology enables fintech companies to collect and store more information on customers so they may be prepared to deliver consumers more personalized properties or services.
What Exactly is Blockchain Technology?
A blockchain is a distinct database that is allocated among the nodes of a computer network. As a database, a blockchain stores data electronically in digital format. Blockchains are best known for their significant role in cryptocurrency policies, for conserving a secure and decentralized report of transactions. The innovation of a blockchain is that it ensures the devotion and security of a record of data and generates trust without the need for a trusted third party.
One key distinction between a typical database and a blockchain is how the data is structured. A blockchain gains and compile communication together in groups, known as blocks, that hold sets of information.
Blocks have distinct storage capabilities and, when restored, are closed and associated with the formerly filled block, setting a chain of data known as the blockchain. All new information that pursues that freshly widened block is compiled into a newly constructed block that will then also be added to the chain once filled.
A blockchain is public: anyone can view it at any time because it resides on the network, not within a single institution. A blockchain is encrypted and it uses public and private keys to maintain a sort of virtual security. A blockchain allows a person to safely send money to another person without going through a bank or financial services provider.
Many in the financial services industry refer to blockchain technology as allocated ledger technology. And some see blockchain as a more valid database than their existing databases. As digital money becomes increasingly prevalent and coupled with a conclusion that more than 50% of the world's population owns a smartphone, some believe that blockchain technology will supersede the banking industry’s old technology. This new financial technology partnership could be the pathway to widely available digital financial products.
How Does a Blockchain Work?
The goal of blockchain is to authorize digital information to be recorded and distributed, but not edited. In this way, a blockchain is a foundation for immutable ledgers, or records of transactions that cannot be modified, deleted, or eradicated. This is why blockchains are also known as distributed ledger technology (DLT).
Optimizing Fintech with Blockchain Technology
Blockchain virtually exists as a responsible block. With the technology, it’s apparent to formulate an entire ecosystem of fintech apps. Blockchain technology can renovate regular financial processes into entirely transparent procedures created on secure and efficient transactions.
When utilized properly, blockchain can create a fintech ecosystem that can revolutionize finance completely. Financial transactions on the block need no middlemen attending and are capable of creating peer-to-peer networks, lightning-fast transactions, and complete transparency.
However, blockchain’s application within finance can account for far more than obvious transactions. With blockchain technology, users can eventually recapture full control of their wealth - helping to pave the way for a fully democratized financial landscape.
How can Banking Benefit from Blockchain Technology?
Once we evaluate the particular features of blockchain, it only makes sense that the banking industry will be taking the forefront in the adoption of this technology.
Banking institutions were established to assemble groups of people and permit all kinds of trade and marketing between them. A blockchain is a tool that can fulfill the same but on a universal scale. Moreover, it’s secure and translucent.
Blockchain also holds imaginable significance for global commerce. It could make trade more productive by eliminating the manual and paper-based procedures and submitting rather streamlined and automated ones. A social blockchain can be a great cooperative tool because it’s decentralized, and no sole entity can own it. That’s why blockchain is more than just the underlying technology for cryptocurrencies.
How can Professional Services Help through the Process?
Banking, FinTech, and Blockchain Association services help create decentralized FinTech and blockchain networks that deliver improved traceability and insurance of data and transactions. Every business prefers a revolutionized financial world. Where old processes and paperwork are reinstated by newfound cooperation, invention, and speed. Where crime and violations could be put to rest by communal trust in a highly stable, shared view of the truth.
Leading financial institutions are trailblazing the way forward with banking, FinTech, and Blockchain, struggling together to discard longstanding friction, establish new solutions and deliver tangible business outcomes.
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