Fintech is changing the way that people spend money, bringing with it not only a hugely accelerated adoption of new banking systems, but also changing the very business models and practices upon which banks operate.
Fintech can bring basic financial services to the lower-income households that continue to be locked out of the banking sector, as well as reduce friction in payments, such as when you pay your bill in a restaurant.
Disruption
Fintech is a term used to describe a number of innovations in technology that disrupt the business model and practices of financial services. One of the most dramatic industry-changing phenomena, fintech is revolutionising the way individuals, businesses and societies interact with financial services. By making it easier and less expensive for small businesses to accept credit card payments, say, or providing ‘Ka-ching!’ updates on revenue on their smartphones, many believe that Fintech facilitates easier entrepreneurship. It sometimes does assist small businesses to obtain much needed capital. To accept credit card payments in the past, for instance, a firm often had to cultivate a relationship with a bank, or set up an expensive infrastructure such as a card reader. Now it can do it with a swipe. Peer-to-peer lending lets people lend money directly to other people, and widespread use of mobile payments systems offer the chance to bypass banks entirely, its proponents claim. Finance becomes more inclusive: barriers to entry fall, firms can be set up almost overnight and by people with little bank capital. Small players can compete Many of the firms hoping to reap the benefits of electronic finance are small, nationwide enterprises, from e-commerce shops to gyms and plumbers. Their chance at success lies in the ability to offer a consolidated payment system built around e-money, which a customer would join once only, using the same e-wallet for all transactions.
Innovation
Fintech promises to bring financial services to new markets and to deliver more convenient products to existing customers, but the technology promises to create many challenges and dangers for regular banks and their customers. And the disruption is coming in the form of financial-technology companies (or ‘fintechs’), which are harnessing the power of data analytics to not only automate tasks in back offices – thereby saving costs, speeding up processes, and enhancing the customer experience – but also to offer countless financial products and services to those who remain beyond the bank’s reach. Based on an automated review of a customer’s credit report, the credit report analysis system can instantly determine which loans are available to that customer, which will save banks time on processing the application in addition to reducing the paperwork involved. From cashless ATMs to new checking accounts, FinTech is altering the way lower-income Americans participate in and engage with the financial services industry.
Disruption of Business Models
Fintech startups are attempting to disrupt the business models of existing banking providers – in some cases, by providing more nimble service delivery to pre-existing consumers (ie, those who already have access to formal banking, but not the ability to receive payments electronically); in others, by providing faster or better assistance. Being a platform business, they serve as an intermediary between the person who wants to buy something and the person who is offering something for sale. They do not lend money or accept deposits, like an ordinary bank might, but rather earn their money through a variety of measures: for example, through payment processing, or an e-commerce platform like eBay, or as a mortgage broker. This upheaval in finance has created chaos, FinTechs that use data and analytics to offer mass and personalised service. Additionally, FinTech could increase economic growth across developing countries by enhancing capital intermediation, which is a key growth driver.
Customer Experience
Modern financial technology innovations enable many consumers to live easier lives in many different ways. Take smartphone card-swipe payments, international money transfers, mortgages with zero-interest promotional periods, or credit cards with zero interest promotional periods: fintech innovations can save people precious time, smoothen friction and enrich experiences. Increasingly, companies are bringing payment processing in-house with help from these new integrated payment providers. Whether it’s Shopify for ecommerce, Mindbody for yoga studios, or Housecall Pro for plumbers, the software footprint unites payments while providing managers a clearer picture of a customer’s habits. Fintechs are disrupting the business model of the incumbents; cooperation between incumbents and fintechs is essential to keep the business up and running in an innovative world, and fintech revolution is already taking over, as many of the world’s top banks have entered into strategic partnerships with fintechs to help them stay ahead of the change and to improve service quality.
Consolidation
Fintech companies differ from traditional banking more in that, once the initial investment in programmes is made, they can more quickly collect and analyse large volumes of data, spotting trends to enhance the efficiency of their businesses, while simultaneously reducing costs and adding value for customers. Through innovative technologies, shared digital platforms and entrepreneurial support, we are now finally shifting the governance paradigm from one of control to one of innovation, inclusivity and higher productivity: the world of fintech is here. By making banking services available to previously unbanked developing countries, fintech is also helping small businesses to get the credit cards they need to pay expenses or make offerings to suppliers, or the capacity to accept payments made through credit cards, which are now sadly still seen as a payment option of choice in many higher-income nations. It’s a major step in improving financial resilience in these regions.
