2.3.2. Advantages and Disadvantages of FinTech Development in Banking

FinTech has found a broader meaning day by day and now plays its role as a disruptor of order in various parts of the financial and monetary system, including micro payments, money transfer, lending, comparison and online sales of various types of insurance policies, capital increase, and asset management. It has even been recognized in the formation of new paradigms such as the Bitcoin currency. The industry has expanded the number of online solutions in the above fields to the extent that it has become one of the most important threats to traditional banking and portfolio management. In addition, today, FinTech is seen as a good platform for implementing ideas based on the sharing economy and crowdfunding. That is why Ernst and Young (2016) cited consumers' main reasons for accepting FinTech's solutions: easy account opening (43.3%), more attractive rates/costs (15.4%), access to various products and services (12.4%), better online experience and performance (11.2%), better service quality (10.3%), more innovative products than products available in traditional banks (5.5%), and a higher level of trust than traditional solutions (1.8%). They also remove barriers that prevent consumers from accepting FinTech solutions: the lack of knowledge of Fintech products and services (53.2%), lack of needing to use them (32.3%), Prefer to use traditional financial service providers (27.7%), Not being aware of how to use them (21.3%), not trusting them (11.2%), and Fin-techs have been used in the past, but they don't want to use them again (0.8%). Instead of attacking each other, banks and FinTech are increasingly partnering with each other (see Figure 6).

**Figure 6.** The future strategy of banks and financial technology (FinTech). Source: Capgemini Financial Services Analysis (Capgemini 2017a).

#### 2.3.3. JAK Bank: Interest-Free Banking

Looking at the outside world, we will see that the government, non-governmental public institutions, military institutions, philanthropists, and even in some cases the private sector have established banks that bear a strong resemblance to what we call Islamic banking. Nonprofits need bank accounts to collect revenues used in moving the nonprofit's mission forward. A nonprofit is a corporation given "exempt organization" status by the Internal Revenue Service. Banks usually follow the same rules for opening and maintaining accounts as they do with for-profit organizations with some variations. Individual banks and individual nonprofits may have their own rules and regulations for added security (Leonard 2019). Unity Trust Bank, Meezan Bank, and JAK Bank are examples of nonprofit banking that have taken steps toward fourth-generation banking goals.

The JAK bank was started in 1930 following a massive recession in Denmark (Ielasi and Vichi 2013). Unemployment and high interest rates at the time led farmers to form a co-operative in one year. This cooperative was named in honor of the three founders of classical economics, JAK: Jord (Land), Arbejde (Work Force), and Kapital (Capital). JAK's members concluded that earning profits was the main cause of economic instability and, as a result, inflation and unemployment. So, they started three nonprofit projects to demonstrate the idea of nonprofit loans. JAK Bank may be the first nonprofit bank in the world (Williams and Anielski 2004). A membership of approximately 39,000 (as of December 2015) dictates the bank's policies and direction. The Board of Directors is elected annually by members, who are each allowed only one share in the bank. The JAK Members Bank does not offer any interest on saved money. All of the bank's activities occur outside of the capital market, as its loans are financed solely by member savings. JAK Bank differs significantly from other banks in the following areas, as shown in Table 1.



Source: (Williams and Anielski 2004).

The global crisis and the inability of the conventional banking system to prevent and deal with it, on the one hand, and the relative stability of Islamic banking in the face of this crisis, on the other, have attracted the attention of financial and banking experts and policymakers on Islamic banking. However, Islamic banks have many similarities with conventional banking in the type of transactions and services they provide, so that sometimes these similarities are questioned. Thus, these banks follow the principles and rules, the correct and complete observance of which leads to the stability of the banking system and the fair distribution of income throughout the economy. According to the doctrine of the Islamic Economic Sector, although human beings are free to design financial contracts, invent production methods, and organize economic activities, this freedom is within the limits set for justice and public welfare.

The main similarity between Islamic banking and JAK is the lack of interest. In fact, they both share an ideology. The only difference in religion (fighting corruption, usury, and the spiritual upliftment of man) is that it affects Islamic banking (Hyder 2013). Ahmad (2000) Islamic banking policy that is also in line with JAK principles: (1) the need for spiritual and moral awakening; (2) the rediscovery of the importance of physical and human capital information and the production of real services and goods; (3) a market economy with social responsibility, (4) moral commitment, and the positive role of government. The following Table 2 shows the main differences between Islamic Banking and JAK.


#### **Table 2.** Main differences between Islamic Banking and JAK.

Source: Own contribution of the authors.

It is clear that bankinginterest rates cause unemployment, poverty, and social harm. In 1931, JAK members concluded that profit was the main cause of economic instability, resulting in high inflation and unemployment. So, they started profit-free projects to show that the idea of profit-free loans is coming true. High interest rates mean the rising cost of goods and services in all production and trading activities associated with lending. In the face of such price increases, industries are forced to (1) decrease wages or dismiss part of staff; (2) increase the price of their goods or services and; (3) increase the production of your goods or services by producing them on a large scale, in whichcosts are staggering and economical in scale.

#### 2.3.4. Atom Bank and Gobank: Branchless Banking (BB)

Atom Bank is the first bank in the United Kingdom to be established based on BB and mobile application architecture (Atombank 2016a, 2016b). In order to achieve better customer service, the specialized focus of the branch staff and cutting costs is a convenient and cost-effective way. BB requires changes inside and outside the bank branches so that the role of the physical branches will not be the same as before, and out-of-the-box changes require up-to-date technology and the use of payment tools such as the Internet, telephony, mobile, ATM, POS, VTM, etc. (Dzombo et al. 2017). BB involves the delivery of financial services outside conventional bank branches, using retail agents or other third-party intermediaries as the principal point of contact with customers, and use of technologies such as card-reading point-of-sale (POS) terminals and mobile phones to transmit transaction details (CGAP 2011).

Banks are being innovative, largely due to intense competition, and they are therefore at the forefront of new developments, not only in banking but also in wider financial markets (Faure 2013). The BB concept began in South America, specifically in Brazil and Mexico (CGAP 2008). Based on early experiences, BB has made a significant contribution toward financial inclusion in developing countries. Most financial service providers collaborate and use partnerships with businesses that have a substantial local retail presence as a key competitive strategy (CGAP 2008).

Delloite (2012) believes that this type of banking is one of the distribution channel strategies used to provide financial services.BB enables customers to reduce costs through instant access. This model of banking to organizations reduces the costs associated with conducting low volume transactions as well as the costs associated with physical presence. There are two main advantages of this type of banking nowadays: first, diversifying services and adapting to market needs, and second, responding to market-created needs (Delloite 2012).

In addition, in many different parts of the world, the development of BB has been emphasized in various ways (CGAP 2010). In Brazil, private and state-owned banks provide services through micro agents such as supermarkets, pharmacies, post offices, and lottery shop. These agents are called "banking correspondents". Municipalities in Brazil belong to this category. In January 2006, The Central Bank of India issued guidelines for banks to use micro agents. The ICICI Bank in India is one of them. In South Africa, BB through micro agents is only permitted for approved financial institutions. ABSA and MTN banks are examples of this type of banking. In the Philippines, since the year 2000, mobile telecom operators and smartphones have been offering BB services. Safaricom in Kenya, a wholly owned subsidiary of Vodafone and a pioneering operator, offers its M-Pesa account to its customers who can fill or empty the account in ways similar to those in mobile electronic money. Gobank is another one of the best and most practical examples of offshore banking that has been launched solely for Americans (GoBank 2016). Go Bank is a real bank that works entirely on mobile. There are five important reasons that drive customers to this type of banking in the US: quick inventory checking, online check-in, money transfer, an extensive ATM network, and security.
