“Ignoring technological change in a financial system based upon technology is like a mouse starving to death because someone moved their cheese” – Chris Skinner
Technology is transforming the way we think, the way we live, and the way we do things. The ultimate goal of technology is the advancement of our lives and works. Like any other field, technological innovations have a great impact on financial activities. In this 21st century, it’s impossible to ignore the implications of technology on financial services and it shouldn’t be. The integration of technology with financial activities & services can be inconceivable. As a result, today we have Fintech, a fabulous cocktail of finance and technology.
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What is Fintech?
Generated from Financial Technology, the term Fintech is used to refer to better and advanced processing of financial activities & services driven by technologies and innovations. Thus, it is the combination of financial systems and technology that aims to improve financial services by transforming traditional financial methods to a new and advanced phase. Rather than a certain technique, Fintech is a process of doing and delivering financial activities & services in technological and innovative ways.
Again, it is also referred to as a ‘financial industry’ which implies technology-friendly improved financial services. In other words, it ensures advanced applications and processes for products and services in the financial services industry. It enables businesses and financial institutions to use specialized software and algorithms for automating their financial activities and providing efficient services.
Financial Technologies around us!
Fintech has been evolving for a long period of time. Actually, the usage of technology in financial systems is not a new story. In fact, technology has always played a significant role in developing financial services. From credit cards to ATMs, electronic trading floors to high-frequency trading, financial systems have witnessed many technological innovations over the decades. In present times, we can easily transfer money using just a mobile phone, pay bills, check bank statements, and much more. There are a variety of personal finance apps as well as business financial apps for doing things more quickly. Using those apps, you can easily monitor your business finances from any digital devices, make online payments, or generate automated invoicing. Thus, technology and innovation have always been a bigshot for financial activities & services.
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How is Fintech evolving?
Comprehensive usage of the Internet, an increasing number of IoT devices, widespread communications have made businesses, banking, insurance, and investment organizations rethink their traditional financial systems. People nowadays no longer want to stand in long lines or waste more time. They want faster, secure, and safe transactions and payments for financial activities. As well as transparency and availability for the financial services they get. For businesses, better and advanced financial activities help to reduce costs and ensure quality service providing. Thus, it’s no longer optional for companies especially banking and other financial institutions to adopt modern technologies for boosting their financial services.
Fintech is mainly dedicated to improve and automate banking services, insurance, investments, risk management, and trading. At its core, it gives innovative, faster, safer, and more efficient solutions for the overall financial systems of businesses and consumers. The solutions or services may vary from project to project or may have empirical differences, it may generate from different existing companies or a
new one dedicated entirely to this particular industry. At present, many reputed organizations like Apple, Goldman Sachs, PWC, JP Morgan, Amazon, Paypal, etc. are involved in developing various applications of Fintech. Moreover, a number of Fintech-based startups have evolved in the industry. Many other companies and institutions are collaborating with these startups to grab the benefits of fintech and to provide the services their customers want.
Every year till 2018, the worldwide investment in Fintech has doubled compared to the previous year. According to KPMG, the global investment in Fintech hit US $135.7 billion across 2,693 deals in 2019. According to CB Insights, 66 VC-backed Fintech unicorns worth a combined US $248 billion as of the first quarter of 2020. A study from FinancesOnline suggests that 60% of credit unions and 49% of banks in the U.S. accept that fintech collaboration is important. Another study from PWC in 2017 revealed that82% of banks, insurance, investment firms accept to partner with Fintech companies and 88% of them are concerned about losing revenue to Fintech inventors.
Remarkable Technologies behind Fintech
Several technology trends are playing a crucial role behind the guts of Fintech.
AI and Machine Learning — Artificial Intelligence (AI) and Machine Learning play one of the most vital roles in the Fintech industry. In fact, these techs are considered as game-changers in the automation of financial systems. Also, AI-based algorithms are very useful in market predictions. Other financial segments like risk management, credit scoring, security analysis, fraud detection, wealth management, and regulatory compliance are mostly benefited by AI & Machine Learning.
Big Data Analytics — Big data is invaluable for today’s business, so as for the Fintech industry. BigData Analytics opens up a vast scope for getting real-time insights of markets and customers. Thus, it is helpful for Fintech companies to make more informed investment and other financial decisions, analyzing market and understanding customer preferences.
Blockchain — Blockchain, a distributed and decentralized digital ledger technology is what inventors need to take the online transaction methods to the next level. Cryptocurrency, one of the most supportive applications for Fintech is mainly based on this tech. It has the ability to become a more secure, transparent and cost-effective alternative to traditional transaction methods. Also, it will speed up the financial operations and make them more efficient and faster. Robotic Process Automation (RPA) — Robotic Process Automation (RPA) is an AI-based technology used to automate certain manual and repetitive tasks. Automating these kinds of processes can
be very helpful for increasing the productivity of Fintech applications. Also, it can ensure fast, efficient and more accurate financial data processing.
Applications & Benefits of Fintech
The area of the Fintech industry is quite big and it’s expanding day by day. And the benefits are more bigger
Digital Payments and Mobile Banking
Digital Payments and Mobile Banking hold a large portion of the Fintech industry. The demand and usage of these services are increasing rapidly. E-commerce is one of the largest growth drivers of these services. Mobile Banking has made banking easy, giving customers digital access to their bank accounts. Mobile Payments, a subset of digital payments, is currently one of the most popular methods for money transactions. Mobile payment services like PayPal, Venmo, Xoom, Apple Pay, Google Pay, Zelle, Alipayare now a big part of the Fintech industry. The size of the global mobile payment market was US $1.8trillion in 2019 and is projected to hit the US $8.94 trillion by 2027.
An excellent and certainly one of the most benefiting outcomes of Fintech is Crowdfunding Platforms. These platforms allow raising funds for businesses, charities, voluntary works, or particular individuals from a variety of sources. Entrepreneurs and small businesses can easily get financial support from these platforms without going to any bank or conventional investors. Kickstarter, Patreon andGoFundMe are some of the most popular crowdfunding platforms.
Evolved from the comprehensive application of Fintech, Insurtech will probably be a distinct face of the insurance industry. It ensures the applications of innovative technologies for insurance services and provides online policy management, claims filing, data protection, and tailored insurances. Thus, it will streamline the insurance processes in a very effective way for the clients. Insurtech startups like Lazarus,
Oscar Health, Relay, PolicyGenius, etc. have been able to capture market attention in a very short time.
Robo-Advisors are the automated financial advisers that are programmed to provide investment decisions, asset and portfolio management support. This algorithm-based Fintech application can be a good alternative to human advisers for investment and financial industry. Besides, it will ensure cost-friendly digital financial supervising in a reliable way.
Regulatory Technology, simply known as Regtech, is a subset of Fintech which aims at automating the compliance processes for financial systems of any organization. It ensures faster and secure management of huge amounts of financial data like transaction records, compliance documents or legal policies in lower costs. It also helps the financial industry by reducing the chances of money laundering and preventing some other frauds.
Cryptocurrency or Digital Currency
Cryptocurrencies contemporary to Fintech are evolved by Blockchain technology and considered to be very supportive for Fintech companies. Again, digital currencies can be a great alternative to traditional transaction methods. The popularity of Bitcoin, Ethereum, and some other cryptocurrency is a good example of that. Fintech companies are very focused on digital currency and are trying to increase their availability to provide hassle-free services to customers.
Fintech will reshape the face of future financial systems. Though in many developing countries, it is evolving at a slow pace, but Mobile payments and banking are very popular in these regions. Hopefully, other Fintech applications will be available there in the near future.