Why is it important?
Financial Technology, or Fintech, shapes nearly every aspect of the financial sector today. Despite humble beginnings 60+ years ago, these technologies continue to grow and impact finance on a global level. In an industry with 25 Unicorns valued at $75+ Billion, I think it’s worth taking a few minutes to understand Fintech.
Where did Fintech find its beginnings?
This all began with business man Frank McNamara forgetting his wallet while out at dinner. After that evening he conceived the idea of the credit card in the 1950’s. Since then, each subsequent decade saw its own advancement. In the 60’s, ATMs made it possible to withdraw cash after banks had closed. Early electronic stock trading came about through the NASDAQ early in the 70’s. Bank mainframe and more accurate record-keeping systems evolved in the 80’s. As the internet was born in the 90’s, the introduction of e-commerce would forever change how many of us shop.
The services banks traditionally offer are: deposits, loans, payments, and financial management. Not only have fintech startups have found ways to improve upon many of those services, but they are also disrupting finance in industries like real estate, insurance, and investment management. Banks like Chase and Capital One strive to ensure they are delivering the best possible mobile app experience with implementing mobile deposits and other technologies to help keep them competitive; however, there are some services they just cannot compete on.
Fintech is adapting to your world
In customer-facing situations, fintech startups are offering mobile solutions for the services mentioned above to their users. The barriers to begin investing have dropped substantially, making the stock market much more accessible to everyone. After researching companies and mutual funds of interest you can start investing by buying and selling stocks for free through downloading apps from companies like Robinhood and Acorns. Payment apps such as Venmo and Apple Pay allow you send money instantly to peers.
(Source: the balance)
Can it be used for social good?
Digital wallets present a massive opportunity for social good on a global scale. According to Falguni Desai, of Forbes, in developing countries found in Asia and Africa, banking penetration is approximately 41%. Previously, many of the people living in regions without a bank had very limited or no access to financial services. Meaning they had no real way to safeguard their finances. In Nigeria, a fintech called Paga introduced a digital wallet and now has more than 8 million users. These users can safely store their money, receive paychecks, pay bills, deposit money to a bank account (if needed), and purchase from merchants with accounts as well. Fintech has been able to help millions of people in developing countries have better access to financial services and manage their finances.
How are they growing?
Fintechs are looking for opportunities to expand their businesses, and one way we’ve seen this happen is through adding new products and services. Initially, most fintechs offered one service or product. For example, Credit Karma (a platform offering their users a free credit report) is one fintech working to expand their offering. They acquired a tax preparation service and provided it to their users for free and had nearly 1 million people file their taxes through it. The addition of new services will continue to happen as fintech companies look for ways to provide better offerings to their customers to drive value and revenue. Below is predicted growth over the next three years, via David J. Maireles.
Other large, well-established corporations like Intuit and Oracle are also looking at how they can keep up with growing trends. They are using DLT and Blockchain technology in fintech development efforts. Intuit is working to implement this technology into their products. This initiative would increase efficiency with accounting and enterprise resource planning, freeing up valuable time to better assist clients. They’ve also integrated a blockchain payment platform, Veem, that allows them to accept Bitcoin payments for QuickBooks (their accounting software). This will broaden their market for potential clients in other countries and help those users save on fees. Oracle has introduced a platform for open banking, it “enables the development and deployment of fintech capabilities on a single platform in the public cloud”. Taking advantage of these trends in the fintech industry will allow companies like those to stay competitive.
This is where AI comes into play
Machine learning has been a substantial component in expanding the fintech industry and will give these companies sustainable advantages as it continues to advance. Network security and fraud detection are increased as these programs recognize any activity that deviates from the norm. Fintechs can offer investment management services through robo-advisors. Through machine learning, they can predict market trends and mitigate market risk by helping their clients best invest their money based on financial goals and how risk averse they are.
Via Mike Quindazzi
What do I think?
Most of us use financial services on a regular basis, and we couldn’t run our lives without them. Fintech technologies will continue to shape the financial sector in an impactful manner. This will simplify how we manage our finances and allow more people to better invest their money. In the future we’ll see our financial institutions proactively offering products and services to us based on our needs.