FinTech is not news.
However, the digital revolution is changing the financial world as we know it, and this is a fact.
The financial industry is at its peak, and technology is evolving faster than ever before.
Due to its growing success over the past 10 years, FinTech has unsurprisingly become one of the most important characteristics of today’s economy and finance.
Why is this, you ask?
Well, keep reading because in this blog post we are presenting the top 8 reasons why FinTech is so important!
What is FinTech?
In very simple words, FinTech means Financial Technology.
This new tech was initially created to be used in back-end systems of well-established financial institutions.
However, FinTech then flourished into a huge financial industry itself, improving and automating the delivery and use of the financial services sector.
As a result, it supports companies, business owners, and consumers, helping them better manage their financial operations by applying specialized software and algorithms that were first used on computers and now, gradually, smartphones.
Through time, FinTech shifted towards consumer-oriented services and now includes different sectors and industries such as retail banking, education, fundraising, nonprofit and many more.
FinTech is Important Because:
1. It’s Universal
Thanks to the power of the internet and today’s amazing technology, financial services have never been more accessible.
No matter where your company is located, all you need is Wi-Fi to enter the mesmerizing FinTech world.
EY Global conducted interviews with more than 27,000 consumers in 27 markets across six continents (where 10 out of 27 are emerging markets).
Interestingly, 56% of the SMEs (small and medium-sized enterprises) interviewed, use a banking and payments FinTech service, and 46% use a financing FinTech service.
2. It’s Cheaper
Compared to corporate and retail banks, the solutions offered by FinTech are often cheaper.
Donna Fuscaldo, a FinTech and cryptocurrency journalist at Forbes, has stated that although traditional banks have online services for accessing accounts and transferring money they “aren’t on the cutting edge of customer-friendly technology and they are still dependent on the fees they charge.”
Additionally, Fuscaldo said that both old and new FinTech banks “are aiming to make your banking life easier and more customized, at a lower cost in fees.”
3. It’s More Secure
Many argue how reliable FinTech is when it comes to security.
In many cases, however, it is actually safer than traditional banking.
As per an article posted on Medium, traditional banks are quite slow when adopting cybersecurity measures. Fintech’s foundation is based on technology, and traditional banks treat this as a simple necessary appendage to their current tested models.
The article also states that “cybercriminals find it easy to penetrate the systems of large and conventional banks because the institutions do not focus on technology as Fintech.” So, although FinTech also has its vulnerabilities, the way the security process is established, makes it better-placed to deal with cybersecurity issues compared to traditional banks.
4. It Creates Economic Growth
According to EY’s Global FinTech Adoption Index 2019, the statistics released showed that the adoption of FinTech services increased from a 16% in 2015 to a 33% in 2017, reaching a 64% in 2019.
Additionally, CNBC reported in January that FinTech companies raised a record $39.6 billion in 2018.
More specifically, in China alone, the adoption rate is 95% due to money transfers and payment apps.
This confirms that FinTech not only helps the economy grow but has established new successful careers in the industry.
5. It’s Empowering Businesses
FinTech offers solutions in which all businesses can have enormous benefits.
SMEs need economic growth more than well-established companies, and they frequently face difficulty in securing the financing they need in order to flourish.
Innovative FinTech products are efficient and effective and give SMEs access to a variety of rich funding options.
These options are tailored to the needs of small businesses and include marketplace (peer‑to‑peer) lending, merchant and e-commerce finance, invoice finance, online supply chain finance and online trade finance.
The CEO of the Dutch development bank FMO Peter van Mierlo said in his opening address of the “Fintech for Inclusion Global Summit” in February 2019, asserted that: “Fintech has a key role to play in reducing poverty, creating jobs, increasing gender equality and improving food security. It will also provide better data and as a result, decrease the perceived risk profile of the frontier countries which will lead to more capital for the underbanked. In short, Fintech can bring economies to life.”
Regarding already well-established businesses, electronic invoicing, open APIs, HP solutions, etc., FinTech enables them to further expand their services, operate at higher efficiency and at scale.
6. It Helps Companies Turn Big Data to Meaningful Data
Businesses have the ability to collect a lot of big data based on their shoppers, sales, website traffic, and numerous other data points.
They need, however, to know how to use this data in their favour in order for it to be useful for the business.
FinTech helps companies of all sizes understand and manage the data they gather, by creating tools and processes which convert it into meaningful data.
This way, businesses can analyze patterns, trends or links. Additionally, it can create reports that will help them track new insights and useful information in order to then create effective strategies in their industry.
7. It Creates Financial Inclusion
FinTech has not only made financial services be available everywhere, but it has also made it available for anyone.
People are shifting away from traditional retail banking, and new digital competition in the finance sector is on the rise.
This digitalization has created an extraordinary development of new universal software capabilities, creating an extraordinary evolution of the financial services sector.
Finally, people who live in countries without a traditional banking infrastructure can now seek the financial support they need online.
8. It Improved Traditional Financial Services
CEO and Co-Founder of Geezeo Shawn Ward, affirms that “The banking industry needs to move beyond viewing FinTech firms as competitors, and embrace the opportunity of bringing FinTech solutions to an increasingly digital consumer” and he is right.
Through the competition between FinTech and traditional financial services, there is a driven improvement which promotes the replacement of legacy systems with innovative new solutions, which can offer benefits to consumers and other sectors of the economy.
Banks have been familiarizing themselves with their new dynamic audiences; Gen Z and millennials. This has made them improve their digital services by putting more effort into “user experience” and the current technology these audiences use.
Ward also explained that both traditional banks and FinTech providers should use their common goal together, which is to build an even better experience for their consumers.
He also said: “Collaboration can increase revenues, generate new business and enhance the consumer experience”.
Therefore, these partnerships will create new opportunities, rather than posing a threat to traditional finance.
To Sum Up
FinTech has been around since the 1950s.
What made it stand out in a “short” period of time, however, is the growing technology which has become part of our daily lives.
This digital age has made FinTech reach a whole new level of finance, and is changing the face of modern banking.
The combination of new telecommunications, data analytics, cryptography, cryptocurrency and other machine learning technologies has the potential to change the whole banking industry in faster and more disruptive ways than ever before.