Fintech is without a doubt one of the most exciting, and most disruptive areas in the business world today. The term itself covers a lot of ground. Short for “financial technology,” fintech essentially encompasses all the digital and online technologies that currently sit in the banking and financial services industry space. Beyond that, how it is used, and its impact on consumers, is much more complex but no less exciting and intriguing. Let’s quickly look at the emergence of fintech and how it is completely reshaping the financial services arena.
What might surprise a lot of people is that fintech goes back about 60+ years. For most of us, when we hear the term, we’d be lucky if our first thought was about the latest mobile app for Starbucks versus something from back in the late 50’s or early 60’s. But the reality is that technology has always played a vital role in the financial sector. It’s just that now we can actually see technology working on behalf of the banks and finance sector, and we can now equate the two together. Prior to this evolution, we either took the relationship for granted or we just didn’t see it.
In fact, in a relatively short period of time the emergence of fintech almost appears to be otherworldly, as it has greatly altered how the majority of us now do business, how we transact with customers, how we transact as consumers and how we transact with each other. In addition, it is significantly blurring the lines between business services, as it is now allowing bankers, financial advisers, and technology providers to provide nearly identical services to a truly global audience.
Consumer behavior, particularly with Generations X, Y and Z, has dramatically shifted the trajectory of fintech. Previously existing financial systems in some markets were simply not keeping pace with societal, or more specifically, technological, changes, thus allowing technology-enabled players to enter the market first with relative ease. What’s really evolved or changed, are the consumer expectations of Gen X, Y and Z, and even Boomers. Whether it’s accessing a mobile app with your banking info on it to transfer funds, sending money via payment apps like Venmo or Zelle, depositing a check by taking a picture of it, applying for a personal loan in two minutes, or managing your finances using a start-up like SoFi, all of these technological advancements have changed how we do nearly everything in our day-to-day lives that involves money. Technologies such as IoT, AI, blockchain and cloud computing are all in play as the major drivers of fintech companies.
The barriers for entry have been lowered for sure as technology has flourished, forcing financial institutions to adapt and change or be left behind. It has opened the door for new challenger start-ups like MoneyLion, which is a “neobank” – a type of direct bank that operates exclusively online without traditional physical branches. MoneyLion’s app offers not only free checking accounts, debit cards and paycheck advances, but also managed ETF portfolios.
Because of these types of deliverables, fintech has not only changed the way people think about money and the value exchange with their financial institutions in a real-time, digital world, but it is also forcing the incumbent banking and payment providers presiding over this landscape to keep up, adapt or get swallowed up by disruptive models that don’t care about how things “used” to be.
In the new global economy, financial firms must stay ahead of technology demands and they absolutely must preserve their bottom lines. The pressure to grow their customer bases has never been more immense and staying on the right side of regulators continues to be a never-ending, ongoing mandate. Meanwhile, faster than you can say financial reporting software, the fintech threats keep growing in scale and breadth, propelled by agility and bleeding edge technologies, with ridiculously low overhead. This new breed of “financial” company is reaching ever further across the financial services value chain, from banking and insurance and wealth management to payments, financial reporting and analytics and everything in between. Disruption is now the operative word in the finance world.
Little did we know that requiring consumers to pay electronically for goods and services instead of using cash would not only change the way we pay for things, but it would also essentially change the way we transact, forever. Factor in payment transfers though smartphones, smart devices as well as smartwatches, and you have yet another example of fintech advancements that many consumers have come to not only expect, but demand.
Much less understood, but no less intriguing because of the possibilities, is the rise of digital currencies like Bitcoin and the distributed ledger technology known as Blockchain. While not yet as thoroughly integrated into our daily lives as the above-mentioned payment transfer options, Blockchain and Bitcoin could eventually greatly change how we pay, save and borrow money, as well as how we manage financial risk.
Although traditional financial services players may consider fintech a disruptor of their industry, those that are embracing technology innovation are transforming the industry from the outside in, and succeeding in areas traditional players have failed in. fintech companies are now leading the industry and are creating a wide range of new financial products and services, with the purpose of making money management easier and more effective. As such, the larger financial players have been forced to adapt at a rate that they are not necessarily comfortable with.
The upside, however, is that fintech is enabling financial services providers to explore new markets that can allow consumers in areas where options are few to access services previously unavailable. With mobile payment and wallet innovations growing at an exponential pace, access to under-banked and un-banked consumers is allowing fintech companies to reach and capitalize on markets that have been underserved to date, particularly in Asia and Africa. Case in point, with 66% of the adult population in Africa unbanked, fintech has a huge opportunity to drive financial inclusion outside of traditional banking systems.
While advancements in the area of fintech have been happening at a dizzying pace, there really is no end in sight as to what is possible and achievable. To say that fintech is literally changing our everyday lives and habits by making it virtually seamless to trade, bank, and exchange money without the need of any type of physical human interaction, would be an understatement. However, the financial sector still has a few loops it still must close, especially in the regulatory and data protection space, in order to win consumer trust and for fintech to truly overtake the market.
What can we expect going forward? Fintech will not only provide digital-first services to existing and new customers, it will also eventually deliver a means of financial inclusion and freedom for those who don’t have access to traditional services in all four corners of our globe.