What Is Fintech or Financial Technology And Its Benefits?
New and fast-growing technologies like Financial Technology or Fintech have the potential benefits to collect and process data in real-time. This transforms how all businesses are working, how products and services are creating in the new economy, and how customers are engaging in this process. Every professional and commercial industry is affecting due by this change in workflows and business processes. The financial and economic sector is no exception.
Financial Technology or Fintech?
Fintech, short for Financial Technology, is a growing field and is now an economic revolution by the tech-savvy. It is the development of new technology to transform traditional institutions such as banks and insurance companies by uplift how they handle their finances and economic services. The process is not only digitizing money but also monetizing data to fit into the digitized world.
FinTech solutions have huge potential benefits for all businesses, especially new and existing small businesses. Small and medium-sized enterprises (SMEs) are essential for economic maturity and employment. However, others may find it difficult to get the financing they need to survive and thrive.
Example
Automated drafting of portfolio management commentaries – Analytics & Reporting (October 2018, Societe Generale Securities Services)
Addventa Fintech exclusive partnership for automated drafting of portfolio management commentaries based on artificial intelligence solutions.
SGSS and the Fintech Addventa have signed an exclusive partnership to launch a service for automated drafting of portfolio management commentaries based on artificial intelligence solutions.
Management companies, who are SGSS clients, will benefit from an automated and instant drafting of performance commentaries for their financial investment portfolios which cover a given time period, selected by the client, in different languages, in a clear and consistent style.
This service relies on the performance and risk analysis reporting tool of SGSS, and also on Addventa’s artificial intelligence solutions.
In 2018, Societe Generale extended its scope of intervention with the acquisition of the French Fintech Lumo, a pioneering crowdfunding platform dedicated to renewable energies. Since its creation, Lumo has collected funds from thousands of individual investors for the benefit of some 40 wind, photovoltaic and hydraulic energy projects that will produce more than 260 million kWh of green electricity every year, equal to the annual consumption of nearly 100,000 households.
Fintech presentation of Revenue
IFRS References – IFRS 7.20(a)(i), (a)(iii), IFRS 7.20(b), IFRS 7.20(c), IFRS 7.20A, IAS 1.82(a), IAS 1.82(b), IAS 1.82(aa), IAS 1.85
|
Consider this! |
|
The IFRS Interpretations Committee discussed the application of the requirement to present separately a line item for interest revenue calculated using the effective interest method and noted that it applies only to those financial assets that are subsequently measured at amortised cost or FVOCI (subject to the effect of any qualifying hedging relationship applying the hedge accounting requirements). [IAS 1.82(a)] However, the Committee did not consider whether an entity could present other interest amounts in another revenue line in the statement of profit or loss and OCI. It appears that an entity may present interest income from other financial assets in another revenue line item if it arises in the course of the entity’s ordinary activities. The Group presents interest income on financial assets that are subsequently measured at amortised cost or FVOCI as part of revenue because it arises in the course of the Group’s ordinary activities. The most relevant measure of revenue is considered to be the sum of net interest income, net fee and commission income, net trading income, net income from other financial instruments at FVTPL and other revenue. However, other presentations are possible. |
Significant accounting policies – Fintech Revenue
C. Interest
i. Effective interest rate
Interest income and expense are recognised in profit or loss using the effective interest method. The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to: [IFRS 9 Definitions, IFRS 9.B5.4.7]
- the gross carrying amount of the financial asset; or
- the amortised cost of the financial liability.
When calculating the effective interest rate for financial instruments other than purchased or originated credit-impaired assets, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not ECL. For purchased or originated credit impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including ECL.
The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.
ii. Amortised cost and gross carrying amount
The ‘amortised cost’ of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance. The ‘gross carrying amount of a financial asset’ is the amortised cost of a financial asset before adjusting for any expected credit loss allowance.
iii. Calculation of interest income and expense
The effective interest rate of a financial asset or financial liability is calculated on initial recognition of a financial asset or a financial liability. In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit impaired) or to the amortised cost of the liability. The effective interest rate is revised as a result of periodic re-estimation of cash flows of floating-rate instruments to reflect movements in market rates of interest. The effective interest rate is also revised for fair value hedge adjustments at the date on which amortisation of the hedge adjustment begins. [IFRS 9.5.4.1]
However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis. [IFRS 9.5.4.1(b), IFRS 9.5.4.2]
For financial assets that were credit-impaired on initial recognition, interest income is calculated by applying the credit-adjusted effective interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis, even if the credit risk of the asset improves. [IFRS 9.5.4.1(a)]
For information on when financial assets are credit-impaired, see (J)(vii).
Presentation
Interest income calculated using the effective interest method presented in the statement of profit or loss and OCI includes: [IFRS 9.5.4.1]
- interest on financial assets and financial liabilities measured at amortised cost;
- interest on debt instruments measured at FVOCI;
- the effective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of variability in interest cash flows, in the same period as the hedged cash flows affect interest income/expense;
- the effective portion of fair value changes in qualifying hedging derivatives designated in fair value hedges of interest rate risk; and
- negative interest on financial liabilities measured at amortised cost.
Other interest income presented in the statement of profit or loss and OCI includes interest income on lease receivables (see (H)).
Interest expense presented in the statement of profit or loss and OCI includes:
- financial liabilities measured at amortised cost;
- the effective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of variability in interest cash flows, in the same period as the hedged cash flows affect interest income/expense;
- negative interest on financial assets measured at amortised cost; and
- interest expense on lease liabilities.
Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income (see (E)).
Interest income and expense on other financial assets and financial liabilities at FVTPL are presented in net income and from other financial instruments at FVTPL (see (F)).
Cash flows related to capitalised interest are presented in the statement of cash flows consistently with interest cash flows that are not capitalised.
D. Fintech Fees and commission
Fee and commission income and expense that are integral to the effective interest rate on a financial asset or financial liability are included in the effective interest rate (see (C)). [IFRS 7.21, IFRS 9.B5.4.1–B5.4.3]
If a loan commitment is not expected to result in the draw-down of a loan, then the related loan commitment fee is recognised on a straight-line basis over the commitment period.
Other fee and commission income – including account servicing fees, investment management fees, sales commission, placement fees and syndication fees – is recognised as the related services are performed. Information about the related Group’s accounting policies is provided in Note 10(C).
A contract with a customer that results in a recognised financial instrument in the Group’s financial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Group first applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual. [IFRS 15.7]
Other fee and commission expenses relate mainly to transaction and service fees, which are expensed as the services are received.
E. Net trading income
‘Net trading income’ comprises gains less losses related to trading assets and liabilities, and includes all fair value changes, interest, dividends and foreign exchange differences. [IFRS 7.21, IFRS 7.B5(e)]
F. Net income from other financial instruments at fair value through profit or loss
Net income from other financial instruments at FVTPL relates to non-trading derivatives held for risk management purposes that do not form part of qualifying hedging relationships, financial assets and financial liabilities designated as at FVTPL and also non-trading assets mandatorily measured at FVTPL. The line item includes fair value changes, interest, dividends and foreign exchange differences. [IFRS 7.21, IFRS 7.B5(e)]
G. Dividend income
Dividend income is recognised when the right to receive income is established. Usually, this is the ex-dividend date for quoted equity securities. Dividends are presented in net trading income, net income from other financial instruments at FVTPL or other revenue based on the underlying classification of the equity investment. [IFRS 7.21]
Dividends on equity instruments designated as at FVOCI that clearly represent a recovery of part of the cost of the investment are presented in OCI.
Notes to Fintech revenue
9. Net interest income
See accounting policy in Note 46(C).
|
In millions of euro |
Notes |
2020 |
2019 |
|
Interest income |
|||
|
Cash and cash equivalents |
71 |
86 |
|
|
Loans and advances to banks |
282 |
247 |
|
|
Loans and advances to customers |
2,756 |
3,007 |
|
|
Investment securities at amortised cost |
119 |
75 |
|
|
Investment securities at FVOCI 20 30 |
20 |
30 |
|
|
Negative interest on financial liabilities |
15 |
– |
|
|
Derivatives in a qualifying hedging relationship |
46(C)(iii) |
56 |
64 |
|
Total interest income calculated using the effective interest method |
3,319 |
3,509 |
|
|
Interest income on lease receivables |
22 |
19 |
|
|
Total interest income |
3,341 |
3,528 |
|
|
Interest expense |
|||
|
Deposits from banks |
49 |
44 |
|
|
Deposits from customers |
449 |
548 |
|
|
Debt securities issued |
343 |
316 |
|
|
Subordinated liabilities |
410 |
353 |
|
|
Negative interest on financial assets |
20 |
– |
|
|
Interest expense on lease liabilities |
11 |
15 |
|
|
Derivatives in a qualifying hedge relationship |
125 |
137 |
|
|
Other interest expense |
2 |
1 |
|
|
Total interest expense |
1,409 |
1,414 |
|
|
Net interest income |
1,932 |
2,114 |
The amounts reported above include interest income and expense, calculated using the effective interest method, that relate to the following financial assets and financial liabilities.
|
In millions of euro |
Notes |
2020 |
2019 |
|
Financial assets measured at amortised cost |
3,208 |
3,415 |
|
|
Financial assets measured at FVOCI |
20 |
30 |
|
|
Total |
3,228 |
3,445 |
|
|
Financial liabilities measured at amortised cost |
1,236 |
1,261 |
10. Net fee and commission income
A. Disaggregation of fee and commission income
In the following table, fee and commission income from contracts with customers in the scope of IFRS 15 is disaggregated by major service lines. The table also includes a reconciliation of the disaggregated fee and commission income with the Group’s reportable segments (see Note 8). [IFRS 15.114–115]
|
For the year ended 31 December |
Total of segments |
|
|
In millions of euro |
2020 |
2019 |
|
Major service lines |
||
|
Account services |
204 |
163 |
|
Transactional |
413 |
400 |
|
Underwriting and syndication |
102 |
93 |
|
Asset management |
101 |
80 |
|
Total fee and commission income from contracts with customers |
820 |
736 |
|
Financial guarantee contracts and loan commitmented |
34 |
23 |
|
Total fee and commission income |
854 |
759 |
|
Fee and commission expense |
-179 |
-135 |
|
Net fee and commission income as reported in Note 8 [IFRS 15.115] |
675 |
624 |
Not included here is the segmentation of this table to Retail Banking, Corporate Banking, Investment Banking and Asset Management
The fee and commission presented include income of €651 million (2019: €523 million) and expense of €71 million (2019: €52 million) related to financial assets and financial liabilities not measured at FVTPL. These figures excluded amounts incorporated in determining the effective interest rate on such financial assets and financial liabilities. [IFRS 7.20(c)(i)]
Asset management fees included fees earned by the Group on trust and fiduciary activities in which the Group holds or invests assets on behalf of its customers. [IFRS 7.20(c)(ii)]
|
Consider this! |
|
The extent to which an entity’s revenue is disaggregated for the purposes of this disclosure depends on the facts and circumstances of the entity’s contracts with customers. [IFRS 15.114, IFRS 15.B87–B89, IFRS 15.IE210–IE211] In determining the appropriate categories, an entity considers how revenue is disaggregated in:
Examples of categories that might be appropriate in disclosing disaggregated revenue include, but are not limited to, type of service, geographical region, market or type of customer, and type of contract. |
|
Some entities may not be able to meet the objective in IFRS 15.114 for disaggregating revenue by providing segment revenue information and may need to use more than one type of category. Other entities may meet the objective by using only one type of category. Even if an entity uses consistent categories in the segment note and in the revenue disaggregation note, further disaggregation of revenue may be required because the objective of providing segment information under IFRS 8 is different from the objective of the disaggregation disclosure under IFRS 15 and, unlike IFRS 8, there are no aggregation criteria in IFRS 15. [IFRS 15.112, IFRS 15.114, IFRS 15.BC340] In addition, banks often provide information about revenue in the segment note on a net basis, whereas the disclosures about revenue under IFRS 15 need to be provided on a gross basis. Nonetheless, an entity does not need to provide disaggregated revenue disclosures if the information about revenue provided under IFRS 8 meets the requirements of IFRS 15.114 and those revenue disclosures are based on the recognition and measurement requirements in IFRS 15. |
|
An entity is required to disclose sufficient information to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue and revenue information that is disclosed for each reportable segment, if the entity applies IFRS 8. [IFRS 15.115] |
|
Although the fee income from financial guarantee contracts and loan commitments is recognised in accordance with the principles of IFRS 15, the financial guarantee contract is in the scope of IFRS 9 and the fee income from it is not revenue from contracts with customers. The Group presents the fee income from financial guarantees as part of total fee and commission income. [IFRS 9.4.2.1(c), IFRS 9.B2.5(a)] |
presentations;B. Contract balances
The following table provides information about receivables and contract liabilities from contracts with customers. [IFRS 15.116–118]
|
In millions of euro |
Notes |
2020 |
2019 |
|
Receivables, which are included in ‘other assets’ |
28 |
11 |
10 |
|
Contract liabilities, which are included in ‘other liabilities’ |
34 |
-3 |
-1 |
The contract liabilities primarily relate to the non-refundable up-front fees received from customers on opening an asset management account. This is recognised as revenue over the period for which a customer is expected to continue receiving asset management services. The weighted-average expected period at 31 December 2020 was 8.5 years (2019: 8.5 years). [IFRS 15.120(b)]
The contracts do not have a minimum stated term. A customer can cancel an asset management contract at any time after contract inception for a surrender charge, which is usually insignificant. Because the customer has discretion over when to terminate the contract, the contract does not have a significant financing component. [IFRS 15.119(b), IFRS 15.11, IFRS 15.62(a)]
The amount of €0.8 million included in contract liabilities at 31 December 2019 has been recognised as revenue for the year ended 31 December 2020 (2019: €0.5 million). [IFRS 15.116(b)]
C. Performance obligations and revenue recognition policies
Fee and commission income from contracts with customers is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a service to a customer.
The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies.
For the accounting policy for fees and commissions in the scope of IFRS 9, see Note 46(D); and for the accounting policy for onerous contracts, see Note 46(V).
|
Type of product/service |
Nature and timing of satisfaction of performance obligations, including significant payment terms |
Revenue recognition policies under IFRS 15 |
|
Retail and corporate banking service What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech |
The Group provides banking services to retail and corporate customers, including account management, provision of overdraft facilities, foreign currency transactions, credit card and servicing fees. Fees for ongoing account management are charged to the customer’s account on a monthly basis. The Group sets the rates separately for retail and corporate banking customers in each jurisdiction on an annual basis. Transaction-based fees for interchange, foreign currency transactions and overdrafts are charged to the customer’s account when the transaction takes place. Servicing fees are charged on a monthly basis and are based on fixed rates reviewed annually by the Group. |
Revenue from account service and servicing fees is recognised over time as the services are provided. Revenue related to transactions is recognised at the point in time when the transaction takes place. |
|
Investment banking service What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech |
The Group’s investment banking segment provides various finance-related services, including loan administration and agency services, administration of a loan syndication, execution of client transactions with exchanges and securities underwriting. Fees for ongoing services are charged annually at the end of the calendar year to the customer’s account. However, if a customer terminates the contract before 31 December, then on termination it is charged the fee for the services performed to date. Transaction-based fees for administration of a loan syndication, execution of transactions, and securities underwriting are charged when the transaction takes place. |
Revenue from administrative agency services is recognised over time as the services are provided. The amounts to be collected from customers on 31 December are recognised as trade receivables. Revenue related to transactions is recognised at the point in time when the transaction takes place. |
|
Asset management service What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech What Is Fintech |
The Group provides asset management services. Fees for asset management services are calculated based on a fixed percentage of the value of assets managed and deducted from the customer’s account balance on a monthly basis. In addition, the Group charges a non-refundable up-front fee when opening an account. |
Revenue from asset management services is recognised over time as the services are provided. Non-refundable up-front fees give rise to material rights for future services and are recognised as revenue over the period for which a customer is expected to continue receiving asset management services. |
|
Consider this! |
|
The Group presents significant accounting policies related to fee and commission income from contracts with customers in the ‘net fee and commission income’ note, rather than in a separate note with other significant accounting policies because it believes that this is useful to the users of its financial statements (see Note 46). [IAS 1.117(b), IAS 1.119] Other approaches to presenting accounting policies may be acceptable. |
|
In this example, the only fees that the Group earns from credit cards are monthly service fees that are charged for operating the account. In practice, credit card arrangements may be more complex and include different types of fees charged for provision of different services – e.g. insurance or customer loyalty programme. An entity needs to perform an analysis of its specific credit card arrangements to identify its performance obligations under the contract with customers and determine the appropriate accounting treatment. |
11. Net trading income
See accounting policy in Note 46(E).
|
In millions of euro |
2020 |
2019 |
|
Fixed income |
1,261 |
981 |
|
Equities |
70 |
17 |
|
Foreign exchange |
90 |
16 |
|
Other |
13 |
-27 |
|
Net trading income [IFRS 7.20(a)(i)] |
1,434 |
987 |
|
Consider this! |
|
Net trading income:
However, other presentations are possible. |
12. Net income from other financial instruments at FVTPL
See accounting policy in Note 46(F).
|
In millions of euro |
2020 |
2019 |
|
Net income from financial instruments mandatorily measured at FVTPL other than those included in ‘net trading income’ (see Note 11) [IFRS 7.20(a)(i)] |
What Is Fintech What Is Fintech What Is Fintech What Is Fintech | What Is Fintech What Is Fintech What Is Fintech What Is Fintech |
|
Derivatives held for risk management excluding the effective portion of derivatives held for hedge accounting purposes: |
What Is Fintech What Is Fintech What Is Fintech | What Is Fintech What Is Fintech What Is Fintech |
|
– Interest rate |
-76 |
11 |
|
– Credit |
44 |
-21 |
|
– Equity |
-54 |
42 |
|
– Foreign exchange |
-10 |
5 |
|
Investment securities: |
What Is Fintech What Is Fintech What Is Fintech | What Is Fintech What Is Fintech What Is Fintech |
|
– Corporate bonds |
47 |
20 |
|
– Equities |
59 |
25 |
|
– Asset-backed securities |
12 |
-10 |
|
Loans and advances |
153 |
-55 |
|
Net income from financial instruments designated as at FVTPL [IFRS 7.20(a)(i)] |
What Is Fintech What Is Fintech What Is Fintech | What Is Fintech What Is Fintech What Is Fintech |
|
Investment securities: |
What Is Fintech What Is Fintech What Is Fintech | What Is Fintech What Is Fintech What Is Fintech |
|
– Corporate bonds |
123 |
165 |
|
– Equities |
-10 |
-13 |
|
– Asset-backed securities |
-181 |
-151 |
|
Loans and advances |
– |
194 |
|
Debt securities issued |
-30 |
-185 |
|
77 |
27 |
|
Consider this! |
|
Net income from other financial instruments at FVTPL includes:
However, other presentations are possible. |
13. Other revenue
See accounting policies in Notes 46(B)(i), (G), (J)(iii) and (O).
|
In millions of euro |
2020 |
2019 |
|
Net loss on sale of debt investment securities measured at FVOCI: [IFRS 7.20(a)(viii), IAS 1.98(d)] |
What Is Fintech What Is Fintech What Is Fintech | What Is Fintech What Is Fintech What Is Fintech |
|
– Government bonds |
-69 |
-65 |
|
– Corporate bonds |
-60 |
-60 |
|
Dividends on equity securities measured at FVOCI [IFRS 7.11A(d), IFRS 7.20(a)(vii)] |
2 |
8 |
|
Net gain from foreign exchange [IAS 21.52(a)] |
174 |
154 |
|
Other |
32 |
31 |
|
79 |
68 |
|
Consider this! |
|
The following have been included in other revenue:
However, other presentations are possible. |
14. Losses arising from derecognition of financial assets measured at amortised cost
See accounting policies in Note 46(J)(iii).
During the year ended 31 December 2020, the Group sold certain investment securities measured at amortised cost (2019: nil). These sales were made because the financial assets no longer met the Group’s investment policy due to a deterioration in their credit risk. [IFRS 7.20A]
The carrying amounts of the financial assets sold and the losses arising from the derecognition at 31 December 2020 are set out below. [IFRS 7.20A]
|
In millions of euro |
Carrying amount of financial assets sold |
Losses arising from derecognition |
|
Loans and advances to customers |
18 |
5 |
|
Government bonds |
12 |
1 |
|
Corporate bonds |
8 |
3 |
|
38 |
9 |
Annualreporting provides financial reporting narratives using IFRS keywords and terminology for free to students and others interested in financial reporting. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.
