Fintech, the transformative intersection of finance and technology, refers to a business that leverages computerised technology to automate financial services, revolutionising the financial industry as we know it.[1] Emerging technology helps improve finance activities. The term encompasses an industry that serves the interests of both seller and buyer. From mobile banking to cryptocurrency, Fintech has an endless set of applications. This industry will continue to expand in the coming years. Many traditional banks increasingly support this technology and partner with fintech startups to give consumers what they want. Fintech has gained significant market popularity in recent years. The fintech industry’s success in emerging markets results from its ability to tap into tech-literate employees.
Over the past few years, Fintech has experienced a remarkable surge in adoption and application. What was once a complex way to manage finance is now a global phenomenon, with billions of people embracing online banking and other Fintech solutions.[2]
How does Fintech work?
Fintech is not a new industry, but it has revolutionised the world. Undoubtedly, technology has always been a part of our financial world, whether it is the introduction of Credit Cards in 1950, ATMs, or electronic trading floors. Fintech companies use machine learning algorithms, data science, and blockchain. However, the growth of the fintech industry also brings the problem of cyber security while making it a target for criminal attacks. However, technology continues to evolve to mitigate the threats that emerge.
Typical Fintech Users
B2B
Fintech is used by businesses to get loans and other financial services through smartphones. Cloud-based platforms and customer relationship management services such as Salesforce render enterprise-oriented services, allowing companies to access and manage financial data. This happens with B2B-focused cross-border payments startups like Airwallex and dealing with the international transfer needs of businesses.
B2C
Fintech is used in several business-to-consumer applications like Payoneer, Paypal, Venmo, Skrill, and Apple Pay, permitting users to transfer money online. Budgeting apps like Mint allow users to manage and track their finances. And companies like ZhongAn Insurance and Lufax like credit digitally and insurance.
Nowadays, Fintech is used for crowdfunding, cryptocurrency, Mobile payments, insurance, Robo-advising, and stock trading apps. At the same time, the industry is expanding to cover all the finance-related issues of consumers and offer them the best service available.
Insights for Present and the Future of Fintech
The adoption of new technology also leads to increased risk. In large corporations (and smaller ones), executives can surprise us by using risks to enhance the company’s performance. Undoubtedly, customers have welcomed the idea of financial technology, and people are more comfortable managing their cash online. Financial technology is not just a trend; it’s a transformative force that is reshaping the industry. As institutions increase their investment in Fintech and compete with startups to provide the best financial services efficiently, the future of finance looks bright and promising.
According to a recent report, startups could have an estimated ensnare up to $4.7 trillion annually, and established firms could generate a revenue of $450 trillion. Financial services are poised for transformative change, which is why mega corporations are flooding money into fintech investment. But at the same time, new finance technology also creates risk, and executives know how to convert these risks into opportunities. Some insights into the present and future of Fintech are laid down:
Firms adopting to Fintech
Financial firms are leaping into the fintech game. Many firms are aggressively determining to use this technology for their systems. They act as venture capitalists to see what problems this technology can solve by investing in their internal projects. Some join different chambers to work with the industry, while others watch what happens next. There has been a great response from within the industry.
Growing Blockchain Benefits
The scope of potential blockchain benefits keeps growing and is truly exciting. Blockchain abolishes the need for a central intermediary to do asset transfers, and the asset transfer is not limited to money. It could be home sales, vehicles, titles, etc. Blockchain also produces efficiency. Typically, payment transactions go through a central intermediary that uses steps to authenticate and authorise the allowed person to send money and get the actual settlement. Blockchain reduces the number of steps, and you can get the cash in just one step within only a few seconds. The potential of blockchain to revolutionise financial transactions is genuinely thrilling.
Another benefit of blockchain is the creation of an audit trail. Blockchain relies on a distributed database. A duplicate database copy is available for information, and all data is public. You can access the blockchain ledger, which is immutable and has proof that the transaction occurred. Be assured that the data or record has not been modified as long as it remains on the distributed ledger. Many financial services industries can propel performance through this technology to increase transaction speed and transparency.[3]
According to the report, 77% of financial institutions plan to incorporate blockchain into their operations, and 90% of payment companies are already moving toward blockchain. It is estimated that cumulative investment in Fintech will exceed US $250 in the coming years.
Regulators Interest in Fintech
Regulators are showing interest in Fintech across the globe. Progress has been made to help regulators keep pace with blockchain innovation. In different places, regulators seek to establish sandboxes to identify how technology can be used to solve problems. Many regulators plan to participate in fintech instead of just responding to it.
In the US, regulators are very interested in blockchain, and these bodes approach them from a common viewpoint. US regulators are actively watching while giving players space to sort things out. However, the main challenge is balancing innovation with risk and controls.
Potential Implementation Challenges
Executives are planning to understand the potential implementation challenges. Fintech and other technologies induce excitement, but with the disruption come changes to architecture and new implementation challenges. Firms have recognised that technologies can solve specific problems, but services and financial operations are complex.
There is considerable enthusiasm for how transformative these technologies can be and will be, but the implementation leads to operational challenges, like which issue you solve first. And how do you sort out problems without impacting other businesses? Executives must find a solution for incorporating and applying new technologies and their impact on the existing system, whether short-term or long-term. It is more complicated than you think, but strategically taking risks also brings significant rewards. The potential rewards of taking strategic risks in implementing fintech should motivate and inspire executives to overcome these challenges.
Technological Race, not Sprint
The industry realises this is not a sprint but a marathon. There has been a lot of hype and capital investment in this space. At the same time, there has been anticipation and worries about what fintech technology can do for the industry. The industry understands it is a never-ending race, and firms invest heavily in it.
The Growth and Functioning of Fintech
Fintech has experienced exceptional growth in adoption and application over the past few years. What was once considered a complex and specialised domain has now become accessible to billions of people worldwide, thanks to the rise of online banking and digital payment services. According to a recent study, 97% of consumers are aware of fintech transfer and payment services, with 75% already utilising such technology.
But how does Fintech work? Although technology has always played a role in finance, fintech companies have revolutionised the industry by utilising machine learning algorithms, data science, and blockchain technology. These advancements enable a wide range of financial activities, but they also bring new challenges in terms of cybersecurity. However, as technology continues to evolve, so do the measures taken to mitigate emerging threats.
Fintech serves businesses and consumers, offering various applications tailored to their needs. On the business-to-business (B2B) front, companies use Fintech to access loans and other financial services through mobile platforms. Cloud-based solutions and customer relationship management services like Salesforce enable enterprises to manage their financial data efficiently. B2B-focused startups like Airwallex cater to cross-border payment needs, facilitating international business transactions.
On the business-to-consumer (B2C) side, Fintech plays a crucial role in applications such as Payoneer, PayPal, Venmo, Skrill, and Apple Pay, which enable users to transfer money seamlessly over the internet. Budgeting apps like Mint help individuals manage and track their finances effectively. Additionally, companies like Zhong, An Insurance, and Lufax offer digital lending and insurance services, utilising Fintech to provide convenient and tailored solutions to consumers.
Critical Insights into the Present and Future of Fintech
The adoption of new technologies brings both opportunities and risks. Many financial institutions actively invest in Fintech and compete with startups to provide efficient and innovative financial services. It is projected that startups could capture up to $4.7 trillion in annual revenue while established firms could generate $450 trillion. The financial services sector is poised for transformative change, and mega corporations are investing significantly in Fintech. However, this also highlights the importance of managing associated risks effectively and converting them into opportunities.
In a nutshell, Fintech has become a part of our lives, and we can manage all the finance-related issues online while sitting at home. Several firms’ applications, such as PayPal, Payoneer, etc., also help us monitor and control cash flow. The firms are keenly focusing on Fintech for investment as the growth in this industry is vast and unmatchable. The insights mentioned above clearly explain the perception of everyone indulging in this industry. Investors and regulators will continue to play an essential role in this technology. At the same time, an early finance structure quickly becomes limiting in front of this fastest-growing FinTech.
References:
[1] FinTech and the Future of Financial Translation – Brightlines Translation Services. https://brightlinestranslation.com/fintech-and-the-future-of-financial-translation/
[2] Fintech-Consumer findings and Trends | TechGig. https://www.techgig.com/webinar/Fintech-Consumer-findings-and-Trends-1616
[3] FinTech Startups. Who is the next Klarna in the Nordic Sky? | IT Blog of Altabel Group Company. https://blog.altabel.com/2018/02/28/fintech-startups-who-is-the-next-klarna-in-the-nordic-sky/
