Evolution of Financial Technology Impact

Chapter One: Introduction

The application of Financial Technology can be traced as early as in the 1950s (Coad and Rao, 2008). As technology evolves, financial innovations have also developed to become an integral part of the financial industry, in way that most people did not project, practically; Financial Technologies have hugely affected the financial performance of financial institutions. As part of technological changes in the market, Banks have been forced to improve on efficacy using Financial Technologies; this has been achieved through mobile money lending and transfers, internet banking, and agency -based banking. Banking institution all over the world has been able to handle clientele requests, disperse information quickly through technology , which has reduced the long ques in banking halls that was a common occurrence in the 20th century , reduction of expenses used in staffing and idle time (De young, 2005) , I n recent years, internet banking platforms and mobile banking applications that were invented through Financial Technologies have led to improved efficacity in the banking sector across the world. It means that clients can use remote transactions without visiting the banking hall. Financial analysts and scholars have established different concepts that try to define financial technology in relation to the existing economic situation in a country or a region. These two concepts will be used to guide this study, the first concepts are the Theory of Financial Intermediation, and second it the technological Adoption Model (TAM). Financial International Theory is too essential since financial institutions can link with depositors who have surplus funds, with borrowers who have deficits and will have to use business technology platforms. An influential intermediary role by financial institutions has a significant impact on the performance as turnaround time, and transactions are decreased with utilisation of economic, technological bases. Contrary, TAM explains the facets that a financial institution would consider before adopting a financial remedy. Any financial institution ought to assess the negative impacts of Fin Tech versus the positive implications of these occurrences on business performance, and later establish an ultimate decision on whether to adopt the technology or not.

The application of technology in the banking sector was initiated in the 1950s, with the introduction of credit cards. At this point, credit cards seemed like the most significant innovation in the financial industry, until in the 1960s, when ATMs were introduced to supplement bank branches and tellers. From these innovations, it was now clear that technology in the banking sector was rapidly evolving. The 1970s were characterised by the evolution of electronic stock exchange, while in the 1980s, the centralised servers and a more explicit record- keeping platform were established. The internet emerged in the 1990s, which prompted the emergence of stock brokerage and site that replaced phone driven brokerage. It is during this time that the phase Fin Tech was tailored with the establishment of the financial services technology consortium that was set up by Citicorp in 1993. After half a decade, in 1988, the first bank in the USA established a principal value -based website that hosted internet banking and was later replicated by various institutions have embraced financial technologies to enhance their efficacy and generate more revenue that would have otherwise generated, if not for the technology adopted.

Research Objective

This study aims to establish a comparative impact of financial technology on banking sector in developed and emerging countries. For developed states, the study of the United Kingdom banking sector as a case study and for emerging countries, the study used the Indonesian Banking Sector as a case study.

Research Questions

1. What are the changes experienced by the developed and developing countries due to the development of fintech?

2. Are the effects of fintech different in developing countries in comparison to the developed states?

3. Are there any lessons that the developing countries can learn from the developed countries when it comes the implementation of fintech?

Chapter Two: Litterature Review

Fin Tech

Financial technologies offer a wide variety of technological solutions that are aimed at achieved more convenience, operation efficacy , and a faster and accurate turnaround Douglas & Janos (2015) stated that the payment space is among the most developed sections in financial technology .Even so, financial technologies have made an enormous impact that has directly or indirectly affected different stakeholders in the financial sector. Fin Tech has led to the enhancement of asset management services by aiding in offering wealth management services to retail clients via an enhanced system, propositions of an algorithm that support the decision-making process, and artificial intelligence management of various portfolio through robots. The same has also affected the banking sector through monitoring savings, leger technology, mobile transactions, faster transactions, cryptocurrency, applications, credit scores, and tax liabilities, among other functions. Electronic banking (e-banking) technology represents a variety of different services, ranging from the common automatic teller machine (ATM) services and direct deposits to automatic bill payment (ABP) , electronic transfer of funds (EFT) , and computer banking (PC banking) , The use of some E-banking technologies has growth rapidly in the USA(Goldfarb,2001; Financial Technology , Bulletin, 2000) while others have been adopted more slowly . To evaluate the scope to which financial institutions have adopted Fin Tech, the study will explore the data analytics that involves using personal and sensitive information. In this case, data analytics is key to when it comes to vital banking services such as lending, saving and investment s. Besides, there is need to evaluate how automated payments are in regards to security, efficacy, and convenience to a client, and how these demands are satisfied. Lastly, it is also essential to evaluate how digital currencies are used by various banking institutions in the United Kingdom and Indonesia.

Fin Tech brings new opportunities to give power to people, for example, by allowing transparency, reducing costs or cutting middlemen and what is even more important to make information accessible. Fin Tech also affects banks which are cautious of being disrupted and, therefore, try to catch on the fin tech train, observing all these thousands of start-ups which create alternatives to traditional banking services (Skan et al .2005) Fin Tech could be understood as a financial service, which is intervened by innovative technologies in order to satisfy the major requirements of today and tomorrow high efficiency, cost reduction, business processes improvement rapidity, flexibility, innovation (Dapp et al .2014).

As stipulated before, this research will be directed by two theories to explain the impact of FinTech in the banking sector in developed and emerging countries (The United Kingdom and Indonesia, respectively), Since the development of FinTech, banks have hired consultants to understand, explain, and predict how they can apply such technologies to attain competitive advantage (Abbasi et al, 2012). Financial technologies majorly use technology to ease the process of commercial delivery to their clients. These technologies mainly use Information Technology (IT) as their principal resource and it through IT that some banks have been edging out. Largest financial inclusion can only mean that every household has access to different ultramodern technology, the financial service such as Banking services, financial services and education to help them make informed decisions (Gupte et Al, 2012) with the help of Fin Tech this endeavour is made even easier as stated by research. Financial Technology (Fin Tech) has had an enormous impact on asset management and consequently financial technology primarily in United Kingdom which is regarded as an excellent fund management centre across the globe accounting for above 6,2 trillion of the assets that are under management (David and Shaul, 2005). The term Fin Tech (also Fintech or Fin -tech) is neologism originated form the words “Financial “and technology and describes internet-based technologies. -example, cloud computing or mobile Internet -with established business activities of the banking industry, example, money lending or transaction banking (Gomber et al, 2017). Such innovations mays disrupt existing structures and blur industry boundaries, facilitate strategic disintermediation, and revolutionize how non-financial firms demand financial services and how financial firms supply credit and products (Philippon, 2016). However, in recent years the internet has been growing and offering many web-based applications as a new way for organisations to retain customers and offer them new services and products (Tan &Teo 2000). For both parties’ customers and organisations to take advantage of these applications, it is crucial to analyse the genuine perception and main reason of people’s willingness to adopt these technologies

(Lee 2000: Liao & Cheung, 2000). Internet banking has emerged as one of the most profitable e-ecommerce applications (Lee2000). Most banks have deployed internet banking systems to reduce costs while improving customer service (Xue, Hitt &Chen, 2011). Dispute the potential benefits that internet banking offers consumers, the adoption of internet banking has been limited and, in many cases, fallen short of expectations (Bielski, 2003). Internet banking is defined as the use of banking services through the computer network the internet, offering a wider range of potential benefits to financial institutions due to more accessibility and user-friendly use of the technology (Aldana, 2001: Yue. Grant &Edgar2007), literature suggests many concepts to identify internet banking, namely electronic banking. online banking and e-banking. with internet banking. Customers can perform. electronically, a wide range of transactions, such as writing check, paying bills, transferring funds, printing statements, and enquiring about balances through the bank ‘s website banking solution. Financial Inclusion lowers inequality in income distribution and significantly reduces poverty. Financial inclusions have enhanced provisions for old -age and young populations for example through retirement pensions, enforcement of thee financial regulatory oversight great financial inclusion and financial contracts enforcement which together has significantly contributed to lower income distribution and poverty reduction (Mercado, 2015). According to (Belleflamme et al, 2014) the concept of crowdfunding comes from the concept of crowdsourcing, which involves the crowd to obtain funds, ideas feedback, and solutions to carry out an entrepreneurial activity (Kleemann et al 2008) defines crowdsourcing when a profit -oriented firm outsources essential tasks for the making or sale their products to the public. The crowding in form of an open call on the internet aimed at attracting the attention of their customers to contribute to the firm’s production process. From the financial point of view, crowdfunding may be related to bootstrapping finance. This form of financing consists of using external sources of funds such as bank loan , business angels or venture capital, amongst others ( see Bhide, 1992 :Bofondi, 2017) An emerging literature on reward based crowdfunding identifies the factors driving a campaign’s success such as project level quality signals ( Mollick, 2014) , narrative ( Marom and Sade, 2013), the use of social media ( Thies et al , 2014, Hong et, al 2015) stretch goals( Li and Jarvenpaa, 2015), project creator social capital ( Colombo et al, 2015)and reputation Li and Martin, 2016) ( kuppuswamy and Bayus (2017) extend the literature proposing that investor support crowdfunding projects when they believe that their contribution will be socially relevant. Recent research is pointing towards equity crowdfunding as an alternative form of entrepreneurial finance (Hornuf and Schwienbacher, 2017).

Crowdfunding, for instance, is a financial technology platform that allows participants to raise finance, capital or money from other people or a group over the internet for projects or other ventures (Schafer et al .2014). Furthermore, some consumers view the service encounter as social experience and prefer to deal with people ( Zeithaml and Gilly, 1987), while others do not see a significant benefit to the technology and will continue to do things as they have always done them certain customers will consider the cost of learning the new technology, and switching to using it , to be too great to be valuable (Matignon and Robertson , 1991). Crowdfunding, for instance is a financial technology in banking industries that allows participants to raise finance, capital or money from other people or a group over the internet for projects or other ventures (Schafer et al .2014). Crowdfunding has contributed to an increased way of collecting payments online and increased acceptance of even small payments from a higher number of people. crowdfunding has facilitated starting and funding of projects which have resulted in success (Kuok et al, 2002). Crowdfunding has promoted creators with increased participation, replication of others success, connections, and expansion of work through the internet. In addition, crowdfunding has led to increased strengthened relationships and a source of rewards to funders which has enhanced financial inclusion (Polland et al, 2014).

A cryptocurrency, broadly defined, is virtual or digital money which takes the form of tokens or “coins”. Crypto currency is another Fin Tech product that was created by Natoshi Nakamoto and it is impacting the financial technology in various places across the globe for the immense reason that it offers significantly lower transaction fees for the purchases and two parties can transact directly without a facilitating third party (KAKOMOTO, 2008). However, the digital currency technology faces increased decentralized risks, exchange rate risks, provides a greater anonymity and has irreversible transactions (Moore, 2013). Example of different cryptocurrency Bitcoin cash (BCH), Litecoin (LTC), Ethereum (ETH), Cash (ZE), Dash (DASH), Ripple (XRP), ect, According to (Mougayar2016), the peer-to -peer electronic cash version allows online payment to be transferred or payments made from one party to the other without visiting any financial institution. In this version, there is no need for a third party to facilitate the entire transaction which has facilitated financial technology in banking industries across the globe especially in countries where digital currencies are in use. The impacts of block chain technology are excellent as the electronic cash promises increased and efficient micro-transactions and increased financial inclusion (Szczuka, 2016). According to an article by Quora in 2015, Increased demand for visualization, analytics software in the finance sector and improved access to financial information to the financial consumer has been facilitated by the big data where experts provide enhanced information on fundraising and financing private companies (Werneck, 2015). In developing Asian countries, such as Indonesian, research has established increased financial access in the countries where citizens are transacting money through mobile baking, online lending and mobile payment solutions. Integrated Fin Tech solutions offers many opportunities in these markets, example online lending can be offered via E-commerce or check out process for people who have no credit card. Mobile banking application which are providing a platform where consumers can even acquire loans through the internet and have led mainly to an increased reduction in poverty and enhanced financial inclusion (Fin Access, 2006).

Financial technology has also had increased impact on market lending where social lending and peer to peer lending platforms enable customers to borrow and easily access lenders which are facilitating financial inclusion across different areas. According to Panetta (2018), the digital information like Facebook allows its users in United Stated to make payments to the people in their contact list is also lending to small businesses. Increased developments in the use of financial technology have led to increased demand for the services by consumers, and increased contact where households , firm, and provides of financial services interact more effectively and is becoming a more widely used method for providing financial services to the consumer (klapper2013). The largest Bank seem to have realized that Fin Tech is not a momentary detail in the history of financial industry and are therefore reacting. Also. as argued. they have the considerable advantage of large network economies themselves, and the economies of scope of building activities. Large banks will likely be able to absorb and digest the digital innovation and converge towards a new type of operator where many financial services, Fin Tech and not, are offered (Buchack et al ,2017). Financial Technology has also led to increased saving which have seen explosive growth. For example, the Yu e Boa in China within one and half years has attracted 185million of customers in China Yu’e Bao is enabling its users to earn increased interest rates on the cash that would otherwise be sitting idle on their bank accounts. This platform has become the largest money -market in the world because of its ease of use (Bates, 2015) Mainly, through online marketplaces, Financial Technology firms have started making a significant impact. For example, in mortgage, Financial Technology brokers are using algorithms in identifying a suitable market for consumers as per the consumers situations where afterwards they administer a less tensed mortgage preapproval process that can sufficiently be filled online (Kevin, 2012) According to the Research Foundation, only twenty-five of Kenyans could access banking services before M-Pesa, by 2014 the number increased 68% due to increased M-Pesa users across Africa, Asia, Middle East and other areas which have made financial services available to 2,5billion people who had limited access to financial services (Corkin, 2016). In microfinance, peer to peep insurance models and remittances, Financial technology has led to tremendous impacts in all these areas (chase et al 2012). According to world bank development report (2016), migrants remittances to developing countries amounts around $440 billion annually where about $32 billion are lost in high transaction cost of sending the money across borders, (Jake et al 2017). Bill and Melinda Foundation in 2011 noted that an estimated 5% cut on fees charged in remitting payments if brought about by Financial Technology firms, can lead to cheaper and faster solutions enhancing financial inclusion (Bates, 2016).

Financial Technology, that has become so intensive, has also brought along some inevitable negative impacts (Mehta et al, 2017). Financial technology determined by experimentation and innovation in data analytics and mining and personal data. Financial Technology, as an intensive ecosystem, has given rise to increased security concerns in data breaches and hacking (Gun, 2018). There are also increased data privacy concerns as Financial Technology has encouraged the use of the closed proprietary algorithm that has led to consumers to be denied access to financial service due to in accurate correlation and they are also unable to correct the situation or determine the reason for the underlying assumptions ( Farooq et al , 2018). Beyond financial inclusion and the consumer privacy there are increased concerned that has also led to analysts pointing that despite increased Financial Technology becoming common place the innovative data use is in early stages although there is increased experimentation on the data, the level to which the data is robust remains unknown (McKinney, 2016) Price discrimination is also another negative impact that may result because of Financial Technology that affords financial services firms an enhanced insight into the behaviours and circumstances of the prospective consumers, this has given an opportunity for some providers to offers financial services to only least risky or most profitable consumers shutting others outside the market (Aretz and Packin, 2015). Cybercrime and other vulnerable technology are another concern and area that has brought negative impacts to consumers as financial digital industry has led to increased espionage and cybercrimes as Financial Technology depends on the internet (Persia et al, 2012). Vulnerability due to digitization has and will remain a major concern for the policy makers, the government and the consumers. Fraudulent online transactions are in rise and they will increase at higher rate from $10.7billion in 2017 to about $25.6 billion by 2020(Juniper, 2016).

Another negative impact of Financial Technology has been brought about by the bitcoin that has promised to give anyone an account provides her or she as a mobile with no identification card that has increased vulnerability fre the consumers (Welbeck, 2018). Although there has been an increased security measure for the digital industry through host -card emulation, tokenization, and biometric authentication and so on loopholes remain, and personal data is at risk of failing, vulnerable or at a risk of being accessed during enrolment of the credit card by the malicious individuals (Goyal et al, 2014). Another negative impact of the financial Technology is the increased and faster access to the credit and peer to peer lending that is turning sour or becomes problematic (Bret, 2017). Financial Technology platforms have streamlined loan application processes and enabled crunching of data in a way to enable a quick decision on whether the loan is given or not (Phan and Tianhe, 2018 ) .As a result of this , many have been able to pay for their debts , these customers experience increased problems as other creditors fail to modify their loans and in other instances these lending platforms continue to electronically deduct loan payments even after they fail bankruptcy (Parboteeah and Alistair, 2016). There are also consumer concerns based on liability particularly when consumer/s contract with the bank relieves bank on any liability in case of fraud or losses that consumers may face because of illegal activities that may arise because of consumers granting access to their accounts to the third parties. Competition concerns have also been raised financial Technology as Banks and other digital platforms try to protect consumers from third parties accessing data for these consumers accounts hence denying the third parties an opportunity of doing business from which they might benefit. Virtual currencies risk is also a major problem as most of these platforms suffer inadequate consumer protection that are related to the fairness and consumer volatility (Farahani et al, 2018).

Increased concern on the systemic risks have also been on the rise because of accelerated network effects and minimal cost distribution have resulted to many people accessing and using online services in a reduced space of time than before (Omarova, 2018). Financial Technology in relation to this means that, the innovative new service is widely used before risks and other flaws are clearly understood or before regulators make any detailed assessment of how these platforms function or before studying any systematic risks that is required in safeguarding consumers (Gergiev and Corbet, 2017) However, changing behaviour of banking customers towards online banking and multi-bank -relations. The diffusion of mobile devices and digital financial services has enabled customers to obtain ubiquitous access to financial informations, in addition, the electronic tools offer functionalities that were previously reserved to bank advisors. overall, the loyalty to a main bank has decreased and customers tend to favour relationships with multiple financial service providers. For example, more than half of Germany’s retail banking customers already use services from rival suppliers and are open for financial products offered by Informatic Technology companies (Bain and comapny2017).

Fin Tech Regulation and consumer Protection

Financial authorities and central banks are working towards supplementing traditional supervisory and regulatory approaches through development of cooperation between public and private sectors and use of new tools in addressing cyber risks which is a strategic priority that should be tackled at the highest regulatory level (Guild, 2017). In the United Kingdom, the Financial conduct Authority regulates peer-to- peer lending since 2014 (Davinder, 2013). In additional, the association of peer -to -peer lending also sets a standard of requirements for members. The Financial conducts Authority sets the requirement for all the platforms to have a contingency for settling loans in case they go out of the business as financial conduct authority considers Peer -to -Peer lending to be a risk venture compared to holding money on the deposit, but the Financial Conduct Authority also notes that detrimental losses may arid=se , in case any arrangements fail to work accordingly ( Baker , 2018) . Equity crowd funding is also regulated by the Financial Conduct Authority, but it does not regulate donation or rewards crowd funding. The association of crowdfunding body in the industry sets codes for the conduct of the members. Financial conduct Authority view crow -funding as high risk considered to peer to peer lending, but these risks apply to all types of the investments. Payment system Regulator was launched in the United Kingdom in 2015 to regulate the payment platforms. The payment system Regulator is reviewing the provision of and the access of the United Kingdom payment system, this is after the body set up a forum with the aim of developing this strategy for these sectors. Payment system Regulator argues that this platform lacks effective competition and therefore, they have proposed that owners should sell some of their stake. In addition, banking and the payment sector will be required to open their data to the third party which might increase competition and increased consumer services although concerns have been raised concerning potential fraudulent use of the data and the consumer privacy (Tre leaven, 2017).

Recently, there have been some efforts by the established Bitcoin exchange platforms that are seeking the government licensing and approval and lobbying for the virtual currency ‘s regulation (David, 2015). Regulation of the Bitcoin has posed various challenges due to highest level of the technology and expertise required in their regulation (Cartas, 2017). Firstly, through online marketplaces, FinTech firms have started making relatively a significant impact on financial inclusion. More people that where unbanked and financially illiterate have now developed interest due to the invertible technological advancements. In developed economies, technology uptakes are very high, and this as well goes hand in hand in the reduction of financial exclusion. Therefore, the reviewed financial inclusion in the recent past while also, highlighting the setbacks that this technological advancement has brought along with it.

The development of Fintech in Indonesia

According to survey of the Association of internet service Providers Indonesia (APJII)2016, internet users reached 132.7 million people from a total of 256.2 million inhabitants of Indonesia. The use of digital technology has changed the behaviour of society such as social interaction up to the process of buying and selling online (e-commerce). with this encouragement that makes the players in the financial industry to develop Fintech. Financial markets in Indonesian have also not been fully addressed by the formal financial sector which is a great potential for Fintech to grow. Fintech start-up company has been developed in Indonesia since the founding of the association of Indonesia’s financial technology company in September 20-15. Competition in the Indonesian banking industry has been fierce since the government introduced its deregulation package in the banking sector in October 1988. Paktor, as the October 1988 financial regulation have become better know, abolished the restriction on new private banks which had been in effect since 1971 and allowed foreign banks to form joint ventures with local partners. following the Paktor, the number of national and private banks increased significantly from 124 in 1988 to 240 in 1996, while the number of branch offices grew dramatically from 1900 to more than 6000 (Bank Indonesia, 1996). Indonesian ‘s dynamic economy and comparatively stable macroeconomic and political environment have offered an auspicious and political environment have offered an auspicious climate for financial intermediation. The country has enjoyed comparatively high rates of growth of output, accompanied by rapid growth of rural incomes and reduction of poverty. Numerous profitable opportunities for investment have emerged, as the infrastructure has been developed, domestic markets have been come more integrated, and the liberalization of trade policies has expanded opportunities for exports to world markets. Permeating the whole economy, this dynamism has resulted in high and growing demands for financial services (Cole and Slade, 1992).

According to the financial Services Authority (OJK) of Indonesia 2018, has launched a registration system for fintech start-ups, marketing o formal recognition of the sector. Indonesia ‘s largest start-ups are riding this wave and creating more application for Indonesians to go cashless. G0-Jek has allowed people to pay for its on – demand motorbike service through its mobile app. At this year’s Global Mobile Internet, e-payments services, Go-pay to transact at various online marketplaces. Indonesians also heavily shop on Baklava and Tikopia with virtual wallets, and even buy local mutual fund with Breaks. However, electronic- services (e-services) are becoming increasingly important in business to consumer (B2C) e-Commerce and portal sites. E-Services are the services that are produces, provided for and consumed, over electronic networks like the internet, ATM, Wireless and mobile devices (chevrin, Dericke & Rouillard, 2005), Although not all services can be traded via electronic means, ongoing innovations within the internet have expanded the opportunities for trade services. The application of e- services are quite familiar are quite familiar, such as online banking online retailing (Amazon.com), online auction (e-bay.com) or online travel booking (expedia.com). Other types of e-services are e-government, such as online tax information, e- learning, such as courses offered online, e- libraries providing electronic access to journal articles or book sections and e-health, such as medical advice (Yee, 2006). Consequently, there are four types of e- services (Cupola, 2008).

The development of Fintech in United Kingdom

The UK financial services industry has experienced an avalanche of changes since the early 1980s ( Woodroffe, 1995;Meidan et al, 1997, Burton , 1994 ).Many barriers to competition have been removed because of deregulatory legislative such as the Building societies Act of 1986, which enhanced the business scope of building societies. According to the United Kingdom Financial Authority (FCA, 2014) attributes growth in crowdfunding sectors to two key factors. technological innovation and the financial crisis, which has led to constraints on lending by traditional credit providers to the real economy. United Kingdom government for initiatives likes Tech city and the Fin Tech sector in general have been commented on positively by Fin Tech start-ups and investors, with the need for incubators and accelerators being underlined because of the expense of opening in London (Shekhar, 2014).

The Financial intermediation Theory

Gurley and Shaw founded the theory in the 1960s; the framework is based on information asymmetry and agency concept. The framework outlines the fundamentalism of fiscal intermediaries in an economy. In respect to the banking systems, an intermediary role is perceived as the process where banks take money from depositors (those who have a surplus) and led them out to those who need it (borrowers with deficits) Scholten’s and Wensveen (2003) state that an effective intermediary is an essential creation for financial products. Intermediary presence is crucial in prancing and covering all direct and indirect expenses. The existing market challenges, such as high costs of transactions, governmental regulations, and asymmetry in information call for the existence of intermediaries. The theory is also essential to this study as Fin Tech eases service delivery and daily operations in financial institutions. The financial sector has grown over the last centuries with the first bank being established in 1472 and a large variety of other businesses .( example : securities firms , insurance companies , real estate agents, Banking industries (Alt and Puschmann2016) Financial companies are often referred to as service providers since they supports firms in a primary market to conduct their business and have over time shaped a secondary market in which financial service providers ( example : mortgage brokers , commercial banks , investment bankers among each other ( Zhu et al. 2004)

Technology Adoption Model (TAM)

Davis developed the theory in 1989 and aimed at understanding the use of technology in various organisations and its acceptance. The approach reveals how different entities accept the usage of technology. Ajzen & Fishbein (1980) retorts that when organisations are presented with a given technology, they choose to consider various factors, before adopting the technology. These factors can majorly be divided into two elopements, which are the projected usefulness of the technology and the Perceived ease to use. The Projected Use is the scope to which users think that this new technology will improve their job performance.

Elements of Financial Performance

In the current market, financial technologies are the crucial determinants of economic performance that is according to the assumption made in this study. Other elements that can determines financial performances include, the adequacy of capital, size of the financial institution, return on equity, Profit Earning Ration, and the Management Efficacy.

The Adequacy of capital

In the banking sector, capital adequacy is evaluated though the following facets, the total quantity of assets, noninterest revenue ration to total assets, total currency available for loan, the ratio of overhead cost to total costs, and the capital available for the sake of expansion. Staikouras and wood (2003) conducted a study in the European Union to establish the relationship between the sufficiency of capital and the financial performance of the banking institution. The study revealed that there is a positive correlation between financial performance and the adequacy of capital. Abreu and Mended (2001) also stipulated that a positive relationship exists between the financial performances of any bank with the equity levels of a commercial bank.

Size of the Bank

According to Hughes and Master (2011), the size of the financial institution has a significant impact on its financial performance. Big established banks can leverage on their size to enjoy economies of scale; this is done through a variety of product mix and therefore attracts more customers. The same factor also reduces the risk in turn significantly, which impacts on the financial performance of the organisation. The larger the bank, the easier it is for managers to striker a commercial deal. Through this manner, they can source for cost -effective financial resources, which leads to expansion and growth, which eventually affects the financial performance of the organisation.

The type of clients

Retail financial institution deal with individual clients, while wholesale banks majority focus on huge corporate and governmental institutions. Wholesale banking renders the respective banks holders of enormous asset base. Besides, retail banks have recorded higher operation cost to income ration, in contrast to their wholesale banking counterparts. This means that retail banking tends to have a high operation cost which negatively affects their financial performance as opposed to wholesale bankers who record a lower operating cost to income ratio (Hawaladar, Lokesh &Biso, 2016).

The efficacy of the Management

The effectiveness displayed by the management implies to the qualitative features of the managerial style, the organisational policies, the discipline of individual managers and the competence posted by the employees, which ultimately affects how a business utilises the available resources to maximize return and attain its predefined objectives (Ikpefan, 2013). In financial institutions and banks, the style used by managers to coordinates the institution ‘s assets, liabilities are the essential factors chose to incur and how its later impacts on the institution ‘s financial performance either positively or negatively.

Microeconomics Facets

Microeconomics variables are the external factors that affects the financial performance of Banks (olweny & Shipo, 2011). These factors include the political environment of a specific country or region, the inflation rate, interest rates on borrowed amounts, the industry size & scope, market concentration, and the ownership partners, which directly affects the financial performances banks (said, 2011). However, complexity of financial institutions is a concern to regulators and supervisors. More recently, the question is what impact fintech and information technology will have on Bank business models, and the scale and scope of banks, Smith and Walter (2010). Economics of scale in the financial sector, a first observation is that bank like to combine many different activities. This distinguishes banks from many of their competitors, example: non-banking financial institutions like mutual funds and finance companies. The latter often choose to specialize and therefore are much more transparent. Bank generally choose to diversity their activities. Although few would readily deny that some degree of diversification is necessary, banks seem to engage in a very broad variety of activities. Particularly in continental Europe, the size (and scope) of banks is enormous. One explanation could be that implicit or explicit government guarantees and too -big-to -fail (TBTF) concerns give artificial competitive advantages to size (Feldman, 2010). Universal banks, while not particularly efficient, might have enough protected revenues to compete with more focused players. Scale and scope economies are often cited as rationale for why financial institutions tend to growth in size and complexity (scope) over time. But are scale and scope economies truly present sources of scale and scope economies include (Boot, & Walter 2003) information technology related economies; reputation and marketing brand name related benefits financial innovation related, and diversification benefits information technology related economies particularly refer to back office efficiencies and distribution network related benefits, Transaction processing offers distinct scale economies. Information technology plays a leading role in the transformation of banking, developments in information technology and the related developing of financial markets have pushed banks to more transaction -oriented activities including trading, at the expense of relationship banking.

Chapter Three: Research Methodology

To asses the effects of Fintech in the banking sectors of various economies, the study will use a combination of quantitative and qualitative research methodologies. From the literature review, it was clear that there is significant gap in the literature review regarding the fact that no study reviewed used qualitative data, rather most of them focused on quantitative data. Thus, the study will be using both methodologies to collect data.

Secondary Data

The study will use secondary data, which revolves around the fact that the investigation will be informed by the already existing information on the topic being discussed. The fact that is already enough information on fintech, the study will be using secondary data to attain the study objectives. Secondary data will be useful mainly to the fact that it would allow the researcher to save on resources such as time and money needed to establish a conclusion.

Study design

The study will be using a case study design to establish the effects of Fintech on both developing and developed economies. Case studies will facilitate the researcher to get a detailed, and in-depth perspective of the phenomenon being studies. Besides case studies will help the researcher to explore the evolution Fintech and its subsequent effects in the banking industries of these economies. The researcher will collect the annual reports of various banking institutions in the United Kingdom and Indonesia for the last 10 years. The study design applied secondary sources that have derived from various reports, papers, financial statements official company records, and verified archives. the researcher compared the obtained data with the Bloomberg’s software, central bank’s regulatory reports to ascertain the validity and authenticity of the data. The researcher will majorly focus on analysing the customer transaction using Fintech technologies.

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