The Impact of FinTech on the Banking and Financial Sectors: Case Study 1

Executive Summary

FinTech is an innovative development in the banking and financial sector. Technological innovation has disrupted the way traditional institutions in the industry provide their products and service to customers. To survive in this landscape, companies should strategically adopt the new trend using some of the proposed options, such as the wait-and-see, M&As of FinTech firms, IT infrastructure investment, or partnerships with startups that have embraced the new model. Cautious analysis of alternative solutions is critical for businesses to benefit from the unique working environment.

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Introduction and Overview of the Situation

FinTech is a technology startup in the financial sector that is disrupting standard operations, such as “mobile payments, money transfers, loans, fundraising, and even asset management” (Cartwright & Allayannis, 2016, p. 2). Technology entails the use of technological applications in providing services. Although it is not clear when FinTech emerged, many analysts have dated its origin to the first decade of the 21st century, around 2005. TextPayMe is believed to be the first actual firm to use the model that enabled payments through SMS. Since its acquisition by Amazon in 2006, the scene was set for the sector to evolve. The major players in the landscape include technology companies, large financial businesses that will capitalize on IT infrastructures, and the end-user who has developed into an institution through self-service applications. The development in IT infrastructure, data-generated payments, and the willingness of the clients to embrace the trend are some of the conditions that have contributed to the success of FinTech.

 Assumptions and Methods

The banking sector is already embracing the FinTech model to serve its customers. One of the methods used includes the historical M&A, which reveals the potential and direction in which the industry is moving. The method is characterized by startup technological firms providing financial services. Banks can retain their services by taking advantage of the technical infrastructure to meet customer needs innovatively (Mearian, 2017). Therefore, the landscape connects the strengths of traditional financial services and the integration of technology through M&As and other business models. Costa’s client should consider acquiring or partnering with one of the startups to provide its services while taking advantage of IT infrastructure. The options might be more valuable than the investment in its capital-intensive business. Besides, the alternatives are advantageous in the long term in case FinTech takes shape in the industry.

Impact on Business

FinTech will affect the way traditional financial institutions provide their services to customers. However, legacy banks should not panic due to the changes created in the sector. Companies are undergoing an era of fragmentation that will change the way they serve their customers. It is an opportunity for them to embrace technological consolidation and broaden their service base. Basically, firms willing to adopt the model will become more active than before. Therefore, instead of panicking, they should strategically integrate the changes to survive in the new setting.

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Over the last two decades or so, the FinTech industry has become a highly-valued specialized segment. For example, in the first three quarters of 2015, the sector garnered global financing of over $11.2 billion for startups (Cartwright & Allayannis, 2016). The startups are valued highly, in some cases, higher compared with the traditional banks. Some of the methods used in the process include discounted cash flow, replacement cost, multiple revenues or book value, strategic/competitive worth, and price-to-earnings ratio comparable (Mearian, 2017). The technological model is one of the reasons FinTech companies are highly valued. The valuing approaches typically consider the business model. Other factors include the size of the investor base, its growth and stability, and the regulation of the sector. Besides, the novel model reveals the potential for multiple services under a common automated platform as opposed to the traditional fragmented financial services.

Descriptions of Sensitivity, Risks, Successes, Failures, Contingencies, and Strategies

Companies in the banking and financial sector should carefully evaluate their options to adopt the FinTech model. The “do nothing” approach in which institutions can wait for the trend to take shape is the first option, whose advantage includes a low risk in case the pattern fails. However, the strategy might cause the danger of being caught unprepared. The client can acquire FinTech companies in readiness for the change. The benefit of the decision is the keenness to accept the adjustment, but this option faces integration challenges. The company can invest in its IT infrastructure to be well-prepared for innovation. Nevertheless, the method has drawbacks, such as fragmentation and complication of legacy systems due to challenges in maintaining, upgrading, and improving the system. The last alternative for the client is to partner with FinTech firms to provide services, which is a low-risk option because the bank will maintain its structures but offer new services through the associates. However, it will not be ready for significant changes in technology, which might be necessary if the trend takes over traditional banking services (Cartwright & Allayannis, 2016). Nonetheless, the last option is most appealing at the current level of evolution of the FinTech industry. The client might not implement major changes and, at the same time, provide FinTech services through the already established partners.

Conclusions and Recommendation

FinTech is revolutionizing banks and the financial services industry as a whole. The trend will continue to change the way these institutions work and serve their customers. Companies in the sector will be forced to innovate around the current products and services to enhance the customer experience. They should be prepared to adopt innovative models, such as M&As, as they strive to align themselves with advanced technology. They will also experience growth in the customer base as more people value faster and more innovative services from their banks. 



Cartwright, K., & Allayannis, Y. (2016). Cutting through the fog: Finding a future with FinTech. Charlottesville, VA: Darden Business Publishing, University of Virginia.

Mearian, L. (2017). What is FinTech (and how has it evolved)? ComputerWorld. Retrieved from

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