COVID-19 has been an unanticipated driver for worldwide technology adoption.
Since this natural downfall, we have advanced five years in consumer and commercial digital adoption in less than eight weeks. Internet activity and transactions have surpassed the point of convenience and have become a requirement.
As consumers become accustomed to a digital lifestyle, they will demand the same level of ease and seamless experience in other spheres of life, especially financial solutions as part of their first necessity. Not to mention, people prefer online banking more than ever before; not because it avoids the crowd for them but the easiness it brings with just a fingertip!
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The result very well showcases the power of financial technology in this post COVID world. In fact, it combines cutting-edge advancements and applications driven by financial solutions enabling firms – particularly start-ups – to disrupt a sector that was formerly controlled and therefore deliver better services to consumers and businesses alike.
However, the impression of FinTech has been remarked on a variety of industries, notably banking, insurance, and investing. Additionally, it possesses an unmatched ability to expand financial inclusion, enhance people’s daily lives, and stimulate growth.
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According to research, fintech produces billions of dollars in annual income and is anticipated to increase in size by 2030. Not to mention again, Fintech’s arrival has led the banking sector to swiftly adapt to the shifting landscape brought about by fintech advances.
This is obvious in the fact that older, recognized organisations are being forced to find innovative methods to do business in order to avoid being left behind.
For a clearer picture, let’s spin from the start. In this post, we’ll examine financial technology in further detail.
Table of Content:
- Define: FinTech (Finance+Technology)
- Benefits of Fintech
- The Significance of FinTech Industry
- FinTech Use Cases/Examples
Define: FinTech (Finance+Technology)
Fintech is a combination of the phrases “Finance” and “Technology.” It refers to any firm that leverages technology to improve or improve financial services and procedures.
The phrase refers to a fast-developing sector that benefits both consumers and companies in a variety of ways. Fintech applications range from mobile banking and insurance to cryptocurrency and investing apps.
Fintech encompasses, or better yet, characterises, any firm that provides financial services via the use of software or other technologies.
The bulk of fintech solutions are meant to be simple to use by integrating the consumer’s money with technology. It has partnered with various applications, totally changing consumer access to financial services.
Fintech disruptors range from insurance and investment firms to mobile payment applications such as Paytm and PayPal. They represent a threat to traditional banking institutions.
Financial technology encompasses a multitude of consumer-oriented applications, and the tools enabled by this technology are transforming how people access, manage, track, and facilitate their finances.
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Benefits of Fintech
Fintech applications provide a slew of significant gains for the business-to-business sector. While some fintech software targets consumers directly (personal financial apps, for example), the overwhelming majority of software solutions are B2B.
1. Cut Down on Expenses
Businesses may always profit from more automation. By implementing regulatory technology solutions, banks stand to save billions of dollars every year.
Along with decreasing the number of employees necessary to do tasks that may be outsourced, the insights provided by fintech apps can help businesses optimise their operations and boost operational efficiency.
2. Boost Decision-Making Ability
This is one area where fintech may be extremely useful to organisations, particularly with the increasing usage of artificial intelligence in solutions. Businesses may now shape their strategies with the assistance of AI-powered, data-driven insights. Armed with this information, businesses may make more educated judgments about where to allocate resources and how to target prospects.
3. Increase the Level of Transparency
Transparency is one of the most significant benefits of fintech, particularly blockchain-based financial technology and AI-powered regtech for the banking industry. Fintech initiatives create auditable financial records and can aid in spotting potentially fraudulent actions more quickly and easily than a human can.
These initiatives’ transparency contributes to the growth of the industry’s anti-money laundering (AML) and know your customer (KYC) elements.
The Significance of FinTech Industry
FinTech’s rise is largely due to the possibility it provides for small companies to compete on an equal footing with established banks and financial institutions. It is no longer about who is the largest, but who is the quickest and most responsive in efficiently meeting ever-changing customer expectations, thanks to FinTech.
Additionally, FinTech businesses’ solutions are no longer “one-size-fits-all.” Rather than that, they provide focused – and frequently niche – financial services that address a specific financial need, typically at far lower rates than those supplied by traditional financial providers.
As customers grow more knowledgeable and connected, the FinTech businesses that succeed will be those that continue to innovate and provide new answers to old issues.
FinTech Use Cases/Examples
While the industry evokes ideas of startups and game-changing technology, conventional businesses and banks are continually integrating fintech services into their operations. Here’s a short look at how the industry is disrupting and improving some sectors of finance.
Mobile banking accounts for a significant portion of the fintech sector. Consumers have increasingly expected easy digital access to their bank accounts, particularly via a mobile device, in the realm of personal finance. The majority of large banks now provide some form of mobile banking, owing to the growth of digital-first banks, or “neobanks.”
Neobanks are basically banks without physical branches, providing checking, savings, payment, and loan services to consumers via a totally mobile and digital infrastructure. Neobanks include Chime, Simple, and Varo.
2. Blockchain & Cryptocurrency
Parallel to fintech development is the emergence of cryptocurrencies and blockchain. Blockchain is the technology that enables cryptocurrency mining and markets to exist, and both blockchain and fintech are responsible for developments in cryptocurrency technology.
While blockchain and cryptocurrency are distinct technologies that fall outside the domain of fintech, both are theoretically required to develop practical applications that advance fintech. Gemini, Spring Labs, and Circle are three significant blockchain firms to be aware of, while Coinbase and SALT are examples of cryptocurrency-focused companies.
3. Savings & Investment
Fintech has resulted in a recent surge in the number of investment and savings applications. More than ever, firms like Robinhood, Stash, and Acorns are lowering the obstacles to investing.
While the approaches of these applications vary, each introduces customers to the markets through a mixture of savings and automatic small-dollar investment strategies, such as immediate round-up contributions on purchases.
4. Trading & Machine Learning
Predicting market direction is the Holy Grail of economics. With tens of billions at stake, it’s unsurprising that machine learning has grown in importance in fintech.
The strength of this subset of artificial intelligence is in its ability to process huge amounts of data through algorithms that identify trends and risks, enabling consumers, businesses, banks, and other organisations to make more informed decisions about funding and purchasing risks earlier in the process.
Fintech is extremely adept at money transfer. The phrase “I’ll Venmo you” has replaced the phrase “I’ll pay you later.” Naturally, Venmo is a preferred mobile payment platform. Payment service providers have altered the way we all do business.
It’s now simpler than ever before to transfer cash digitally to any destination on the planet. Along with Venmo, other well-known payment providers include Zelle, Paypal, Stripe, and Square.
Additionally, fintech is transforming credit by automating risk assessment, expediting approval processes, and simplifying access. Billions of people worldwide may now apply for loans using their mobile devices, and new data points and risk modelling skills are enabling lenders to provide credit to previously underserved communities.
Additionally, customers may obtain credit reports many times a year without affecting their credit score, which makes the lending industry’s whole backend more visible for everyone. Notable credit firms include Tala, Petal, and Credit Karma.
FinTech is allowing people to take control of their financial life, resulting in unprecedented levels of financial knowledge. It is dismantling outdated silos and advancing customers’ financial situations and outcomes via the use of sophisticated technologies.
As more specific concerns emerge during the economic crisis, these businesses and their investors will have something tangible to work on.
As funding shifts to assist them as they expand, startups with strong business models will become successful and secure a place alongside the industry’s established giants.
To summarise, as Fintech firms evolve to remain relevant, it will benefit customers, and we can anticipate Fintech becoming a more important part of our financial life in the future.