Global finance leaders have always regarded fintech as the digital force that can bring unprecedented changes to the industry. Goldman Sachs estimates the worldwide fintech pie to be worth US$4.7 trillion, and with more than 12,000 startups in different parts of the world, this number will keep increasing.
Fintech companies are gaining momentum because of the younger, affluent, and tech-savvy customers. Research by Capgemini found that 46 per cent of clients are using services from over three fintech providers, while 60 per cent financial institutions now view such companies as their potential partners.
Why is fintech thriving?
Because it facilitated the expansion of capital access to small business owners, women, minorities, and immigrants, who found fundraising to be nearly impossible before technology leveled the playing field. No segment of the customers is under-served, establishing a positive impact of fintech on the current startup scene, and fueling its growth.
Strengthening financial data security
Banks and financial organisations are facing enormous challenges when it comes to protecting sensitive data. Heavily regulated by data privacy requirements, the banks and financial institutions are under mounting pressure to be open to the consumers regarding policies and steps taken to protect from security breaches.
Organisations are investing highly in fintech because they want to eliminate their vulnerability to financial losses due to cyberattacks.
Apart from providing security to financial data, it instils convenient transactions, and this leads to flawless cash-flow and smooth operations in the financial system.
An organisation’s cybersecurity strategy must inculcate robust encryption and controlled security policies. Instead of waiting for a cyber-attack, institutions must utilise new technology tools and gain a deeper understanding of policy deployment.
Monitoring all the traffic and limiting potential threats is only possible through fintech.
Low cost of service
Fintech dramatically reduces servicing costs while providing better results. It automates all the operations or relies on human-in-the-loop computing systems to carry out functions smoothly. Fintech companies need not make substantial investments in archaic technologies such as call centres, to tend to the problems of the customers.
The company already has enough information about the customer that when they do need help or a problem arises, they are likely to know about it beforehand and have already started exercising the action plan to resolve it. Ironically, this leads to improved services, as well.
Even the new fintech entrants are adopting multi-channel approaches, and leverage the latest digital marketing tools, without paying the hefty regulation costs. As compared to banks, consumer-facing fintech companies are only seeing 1/100th of the acquisition costs and enjoy a low-friction landing.
Also Read: How is technology influencing Southeast Asia’s fintech industry in 2020
Blockchain penetration in various industries
World Economic Forum estimates that blockchain’s net worth was US$ 20 billion in 2015 and is expected to rise to 10 per cent of the world’s GDP by 2027. Almost 90 per cent of European and American banks are investing in this technology to ensure maximum security for their financial operations and transactions.
Cryptocurrencies occupy a large share in fintech market, with a lot of startups building their company around the most prominent blockchain-based currency, Bitcoin. However, the involvement of blockchain became strong because of technological advancements in the decentralised ledger.
Modern consumers look for uninterrupted control over their finances. A few years ago, a distributed system that cannot be mismatched, is not limited by the government, doesn’t charge any fee, and is controlled by the users themselves looked like a dream. Thanks to blockchain, all of this is possible now!
The app world
The biggest product of fintech is digital payments, comprising 25 per cent of the ecosystem. TechCrunch says that in 2020, 90 per cent of smartphone users will make a mobile payment. In fact, mobile payments, which is a subset of digital payments, are set to break the US$1 trillion record this year.
Despite the tremendous growth, there is still significant room for mobile payments to thrive. Given the high fee involved in transactions, most of the merchants and sellers in the US have to give up a part of their earnings. For example, a US$100 transaction will give US$97.30 to the merchant on average.
Starbucks has opted for a new approach to combat this high-fee policy. Their app allows the consumer to transfer money from their bank account or credit card to a mobile wallet, which can be used to pay for the coffee or food item.
Bringing down the volume of transactions, this eliminates the fee for the merchant.
Also Read: Big banks and fintech startups: Rivals or allies?
Increased regulations
Being among the most heavily regulated sectors in the world, governments are more concerned about regulations as fintech takes off. With the integration of technology in financial services, regulatory problems for many companies have multiplied, which is a reflection of the tech industry’s impatience to disrupt finance.
Usually, regulations can put a damper on growth for many sectors. They are indeed created to protect and control, which leads to slowing things down. Contrary to this, regulations have caused an immense acceleration in fintech, benefitting the incumbents, just like the 2018 tax laws benefited the real estate investors.
In an attempt to limit the amount of personal information available to the banks, the EU has passed the General Data Protection Regulation. Several other countries such as South Korea and Japan, where ICOs are popular, have taken the lead from this to protect the investors.
The bottom line
Over the last few years, fintech has evolved significantly yet, its penetration rates in various industries are significantly low. Despite the slow growth, 88 per cent of traditional financial organisations fear losing revenue to fintech companies in areas of personal loans, money transfers, and payments.
Given the current situation, 82 per cent of such organisations have already planned to collaborate with fintech companies in the next three to five years. Ernst & Young says that approximately 25 per cent of SMEs worldwide have adopted fintech services for financing, banking, and financial management.
Seeing the potential of fintech, it would be unwise to place your bets anywhere else. With a promising future and continuous innovation in the field, fintech has to be the right choice for you to invest and gain maximum in return.
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