What is Fintech? And How Will it Drive Business Models in 2020?
Financial technology – most commonly known as fintech – is the application of technology to improve the financial service sector. Commonly touted as a disruptor in the financial services industry, fintech was initially considered to be the back-end systems of established financial institutions until the global financial crisis hit in 2008. As consumers lost trust in the big banks, fintech entrepreneurs came into the scene bringing technology to the consumer rather than to big companies. And with the advent of cloud computing and the smartphone, fintech has become more accessible and relevant to the world today, enabling consumers to access a variety of services including crowdfunding, blockchain, bitcoin, mobile payments, etc.
With entrepreneurs and big businesses cashing in on the rapid adoption of fintech, funding in the industry according to a Business Insider report, has grown to $32.6 billion in 2018. BBVA adds that spending for fintech in the first half of 2019 accelerated to $120 billion. Companies have been scaling considerably and competition has been getting stiffer. Because of its growing popularity, governments that have been implementing regulations and security technologies like digital identity are catching up. And in other industries, businesses are adopting and integrating fintech into their system through cashless payment systems and other front-end and back-end systems. Leo Bancou says that with 45% of consumers in the U.S. using fintech technology, specifically as payment tools, businesses would be missing out if they didn’t use it themselves.
This adoption has a profound effect on many businesses. The idea of democratizing money has become the norm. Instead of going to banks for transferring funds, borrowing money, tracking their financial data, consumers can now use their smartphones to do their financials as they go about their day. This convenience drives more and more people to adopt this technology—to the point that being without it almost means that business transactions can lag. For example, people prefer cashless payments with their phones, which is more convenient than bringing money around.
As with any industry, making things more convenient for those whom you wish to do business with is already a competitive advantage that companies cannot ignore. According to Statista, the adoption rate for money transfer and payments around the world is at 75%, which means that a company can expand their consumer base by a huge percentage just by adopting technologies that its customers already have at their hands.
More importantly, even the big banks stand to regain the trust of the public by adopting fintech into its system. As such, technologies are not only more convenient, but they are also more transparent. Established institutions like investment bank Goldman Sachs have waded into fintech territory launching Marcus, their consumer lending platform, in 2016, which has since expanded into the UK.
The adoption and the trends in fintech will not go away anytime soon. With big businesses and venture capitalists pouring billions of dollars into fintech startups, the innovation to create more dynamic and secure financial services is bound to continue. Organizations in different sectors can stand to gain from these technologies if they are willing to adapt, which can help improve the way they do business, as well as provide more convenient options to their consumers and clients.
The industry is continuously developing new and better technologies that can keep consumers safe and assure them that their convenient transactions will be kept secure. While there is still room for improvement in developing technologies that even the older generation can adapt, there is no doubt that there is still a lot of growth in the fintech sector that businesses should be keeping an eye on.
