KU Business faculty experts discuss: Digital banking and financial technology
Almost everyone employs digital banking and financial technology, or fintech, to support their daily lives today, but as the banking industry evolves, what should consumers be aware of?
Atanas Mihov is an associate professor of finance and a Capitol Federal Fellow at the University of Kansas School of Business, where he teaches courses like commercial credit analysis and international finance. Mihov holds a doctorate in finance from the University of Florida, and a bachelor’s degree in business administration with a concentration in finance from Ramapo College of New Jersey.
Before coming to KU, Mihov worked as a financial economist at the Federal Reserve Bank of Richmond. He has also held visiting scholar positions with the Dallas and Richmond Federal Reserves over the last several years. His research highlights how new financial technologies, including digital banking and other technologies like artificial intelligence, are related to banking organizations’ operational losses.
What does the general public need to know about the rise of digital banking and different financial technology?
Many people use fintech daily without even realizing it. For example, anytime you deposit a check with your phone, send money through an app or tap your card at a store, you are using financial technology. The public should know that fintech isn’t just for big banks or tech-savvy experts; it’s democratizing financial services. The key is to stay informed about these tools so you can take advantage of the benefits while understanding how they work along with their risks.
Is digital banking safe, and how does it work?
Digital banking can be safe, but it carries inherent risks, including cyberattacks, data breaches and fraud attempts. Banks and fintech companies are aware of these risks and invest in cybersecurity measures like encryption and fraud monitoring. Established financial institutions, especially the largest, are regularly supervised by regulatory agencies to ensure robust security standards. However, no system is completely immune from the risks, so users must also practice good digital hygiene practices like having strong, unique passwords, using two-factor authentication and being vigilant to avoid scams.
Digital banking uses internet networks and software to replicate the functions of traditional banking in an online environment. For example, when you perform a transaction through a mobile app or website, the application communicates with the bank through encrypted channels to execute your request. To simplify it, your phone or computer acts as your “branch.” Many fintech apps connect to your existing bank accounts via secure APIs, which are like digital pipelines that allow different financial systems to talk to each other.
How much do banks rely on financial technologies like mobile payments, cryptocurrency and blockchain now?
Banks today rely heavily on financial technology, especially when it comes to mobile and online services. Virtually every major bank offers a mobile app and online banking platform — these have become essential for serving customers. Traditional banks partner with fintech companies or develop similar technologies to provide convenient services like mobile check deposit, peer-to-peer payments (like Zelle or similar services) and real-time alerts. A large portion of customers now prefer to handle their banking on phones or computers, so banks depend on these technologies to stay competitive and meet customer expectations.
When it comes to cryptocurrency and blockchain, banks have been more cautious but are increasingly involved. Most mainstream banks don’t rely on cryptocurrencies for everyday banking, but many banks are experimenting with blockchain technology behind the scenes. For instance, banks have pilot programs using blockchain for things like cross-border payments, trade finance or improving their internal ledgers because blockchain can increase speed and transparency for certain transactions.
What challenges come along with digital finance?
Many challenges come along with digital finance, but there are two that are crucial. The first one is security. As banking and payments move online, they become targets for cyberattacks, fraud and data breaches. Financial institutions must constantly stay ahead of hackers by investing in cybersecurity, and even then, cyber risks are an ongoing battle. There’s also the issue of privacy. With so much financial data being collected and stored digitally, customers worry about how their information is used and protected. If you’re using multiple apps, you are entrusting a lot of personal data to those companies, so data security and privacy policies are important.
I know you have research regarding international banking; how are central banks around the world responding to the rise of cryptocurrencies?
Many central banks have issued warnings to the public about the risks of crypto assets — like their volatility, the potential for scams and the lack of legal protections. Some countries have taken a hard line, banning cryptocurrency trading and mining within their borders. In other countries, authorities are creating new rules to bring crypto activities under the regulatory umbrella. At the forefront, nations like some European countries and the EU, with its Markets in Crypto-Assets Regulation (MiCA), are establishing frameworks that allow crypto businesses to operate under clear rules.
Where do you see fintech going in the next few years? Are there any emerging technologies consumers should be aware of?
In the next few years, fintech will possibly further blend with traditional banking, with more collaborations and acquisitions between banks and fintech startups. AI and data analytics will personalize financial services. Artificial intelligence is increasingly used in finance for fraud detection, efficient investment management through robo-advisors, and highly personalized financial guidance based on user behavior. Hopefully, there will be clearer regulations on cryptocurrency, digital lending and data sharing, which can encourage further innovation and consumer trust.
Several emerging financial technologies deserve attention, including decentralized finance (DeFi), which offers peer-to-peer financial services without traditional banks, allowing for activities like lending, borrowing, and earning interest directly through blockchain networks such as Ethereum. Central bank digital currencies (CBDCs) are also gaining traction, with countries like China piloting a digital yuan, and others actively researching or testing digital versions of their currencies to streamline payments and modernize monetary systems. Open banking initiatives, which allow consumers to securely share their financial data across institutions, provide greater control over personal finances and facilitate more customized financial services.
Is there anything else you’d like to add?
It’s an exciting time for financial technology, but it’s important to approach these changes with a balance of enthusiasm and caution. Everyone should stay informed about new financial tools. Try out reputable new technologies in small ways, like using a budgeting app or a new payment method, so you can experience the benefits firsthand. At the same time, remember that core principles like budgeting wisely, understanding what you’re investing in and protecting your information are still crucial, no matter what app or technology you’re using.
By Lauryn Zebrowski
